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Iraq's other looting
By Michael Renner
(Posted with permission from Foreign
Policy in Focus)
Chaos and
lawlessness have gripped large parts of Iraq following
the US-British invasion. The country's civilian
population finds itself bereft of jobs and even basic
services. Museums, hospitals, universities, power
stations, water plants and telecommunication facilities
have been stripped bare by looters, leaving the country
in dire straits. Several weeks after the end of major
fighting, ordinary Iraqis have seen little in the way of
benefits from whatever reconstruction is going on.
Indeed, the focus of the occupation regime is more on
emergency repairs than on a major rehabilitation of
Iraq's dilapidated and war-destroyed public
infrastructure. (1)
Less visible than the
pedestrian plundering afflicting Iraq's cities and
archeological treasures, another looting operation from
on high is in the works: the Bush administration has
been moving with great alacrity to take control of the
major prize to be won in Iraq - strategic control over
the country's considerable oil wealth.
While the
invaders tolerated the widespread ransacking, they moved
swiftly to secure the country's oil facilities. In
Baghdad, the oil ministry was heavily guarded and was
thus spared the fate of other Iraqi ministries, which
went up in flames. But the occupiers' inconsistent
attitude toward looting has backfired: in the two months
since the official end of the war, general looting and
sabotage have impeded even the oil industry, frustrating
efforts to quickly return oil production to prewar
levels. (2)
It has become clear that there is a
yawning gap between the Bush administration's sharply
focused war plans and the absence of workable postwar
plans. Post-Saddam Hussein Iraq is caught in the
twilight of an occupation veering between high imperial
purpose and profit-making impulses. Symptoms of crony
capitalism - championing privatization schemes and
rewarding corporations closely connected to the George W
Bush team with reconstruction contracts - collide with
strategic visions of remaking Iraq in the US image. And
the sobering reality of unrelenting chaos that has
engulfed much of the country may well unravel
Washington's ambitions to present a remade Iraq as an
irresistible political and economic model for the rest
of the Middle East and to use this new asset to
reinforce US leverage over the world oil market.
Legitimizing conquest
The Bush
administration was eager to have its occupation of Iraq
legitimized by the United Nations. However, it first had
to ensure that the international body - legally in
charge of Iraqi oil sales under the sanctions regime -
was effectively sidelined and tasked primarily with
humanitarian issues.
The desired UN imprimatur
came in late May, when the Security Council approved a
resolution drafted by the US government with British and
Spanish support. Although leading war opponents -
France, Germany and Russia - made much of several
concessions that altered an initial draft, Washington
and London essentially got what they wanted. (3)
Reluctant to continue confronting the Bush
administration and afraid that they would be depicted as
obstructionists harming ordinary Iraqis' interests, the
war opponents caved in. But hidden "carrots" were also
used to marshal their consent: under the Security
Council resolution, the UN-administered "oil for food"
program will run for another six months, permitting
several billion dollars worth of contracts - initialed
but not operational at the time of the invasion - to be
consummated. A large share of this business involves
Russian, French and Chinese firms.
The Security
Council resolution lifts the sanctions imposed on Iraq
in 1990 (with the exception of arms-related provisions)
and gives the occupiers (dubbed "the Authority" in the
resolution) sweeping powers. The Authority will have
broad control over the Iraqi oil industry, principally
by means of a development fund for Iraq, into which all
of Iraq's oil export revenues, all funds left over from
the UN's "oil for food" program and all assets of the
former Iraqi government located anywhere in the world
are to be transferred. (4)
The Authority is
vested with the sole decisionmaking power over the use
of these revenues (leaving a yet-to-be-created Iraqi
interim administration with no more than "consultation"
rights). The resolution bars any legal challenges by
rival claimants to Iraq's oil revenues until December
2007. But since the initial draft of the resolution
mentioned no time limit at all, the 2007 date was
characterized as a "critical concession" by the United
States. (5)
The initial draft empowered the
Authority for one year, but specified an automatic
extension "to continue thereafter as necessary, unless
the UN Security Council decides otherwise" (6) - meaning
that the US and Britain could have vetoed any effort to
terminate their self-awarded mandate. The final
resolution provides for a review by the Security Council
after one year but still does not require an explicit
reauthorization of the occupation regime. (7) Without a
timetable for establishing a legitimate government, the
occupation - and control over Iraqi oil - is essentially
open-ended.
Open for business
Most of
the individuals assembled under L Paul Bremer to run the
occupation regime lack the kind of expertise in
reconstruction, nation-building and humanitarian
assistance that Iraq so badly needs. Closely linked to
US corporate interests, they are instead primed to
streamline the privatization of the Iraqi economy. (8)
For example, Gary Vogler, a former ExxonMobil executive,
is the newly minted senior adviser to the oil ministry.
(9) And Dan Amstutz, a former executive of Cargill and
well-equipped to represent the commercial interests of
US grain companies, has been pegged as the point man for
agricultural reconstruction. (10)
The Wall
Street Journal reported on May 1 that beginning in
February 2003 - well before the start of the war - the
Bush administration had drafted "sweeping plans to
remake Iraq's economy in the US image". Detailed
planning for such a makeover will apparently be left to
a range of US financial consulting firms (including
BearingPoint, Booz Allen Hamilton, Deloitte Touche
Tohmatsu, and PricewaterhouseCoopers). (11)
The
plan envisions asset sales, private concessions, leases
and management contracts across the Iraqi economy,
including the oil industry. It foresees that the first
year would be spent building consensus for
privatization, to be followed by asset transfers over a
three-year period. (12) The Wall Street Journal article
compares the program to what was done in Russia, but
does not mention the corruption, massive job loss and
gaping inequality that ensued during the Russian
makeover.
Calling the shots in the oil industry
is Philip Carroll, who was named on May 4 to head an
advisory board to the Iraqi oil ministry. (13) Carroll
was chief executive officer of Shell Oil, the US arm of
Royal Dutch/Shell in the 1990s, and subsequently became
head of the construction giant Fluor, a company he ran
until 2002. (14) Carroll still owns substantial stock in
both of these corporations. (15) He is not known as an
Iraq oil specialist and apparently had never been to the
country prior to his appointment.
An innocent
observer may well wonder why Carroll was chosen when
Iraqi nationals presumably have much better insights
about the requirements of getting Iraq's oil industry
back on its feet. The answer lies in the difference
between a disinterested rebuilding program and an effort
to establish foreign control, as suggested by Raad
Alkadiri, a director at PFC Energy in Washington, DC,
when he said, "But the bottom line is [that] bringing in
people from the outside gives you a better chance of
controlling the oil sector, even directly." (16)
The Halliburton empire
A bounty of
postwar reconstruction contracts is being awarded to a
closely drawn circle of politically well-connected US
corporations. Halliburton, Bechtel and Fluor are
companies that have generously supported Republican
politicians and whose executives are no strangers to the
revolving door connecting government and corporate jobs.
(17)
Perhaps no company is better connected than
Halliburton - the oil services and construction firm
that Dick Cheney headed from 1995 to 2000 before running
for vice president. Halliburton's government contracting
business surged under Cheney in the 1990s, and it surged
again in the wake of the September 11, 2001, attacks.
(18) Prior to the invasion, the company had completed a
classified study for the Pentagon, assessing the state
of the Iraqi oil industry and how to revive it after the
war. (19) In early March, the Army Corps of Engineers
secretly awarded Kellogg, Brown & Root (KBR, a
Halliburton subsidiary) a no-bid contract to fight oil
well fires and make emergency repairs. (20) Persistent
probing by Congressman Henry Waxman brought to light
that the company was also given a far more lucrative,
and somewhat open-ended, role in running Iraq's oil
facilities and in distribution of petroleum products.
The contract has an overall ceiling of $7 billion but is
expected to yield a maximum of $800 million for KBR,
given that it is to be opened to bidding later in 2003.
(21) The secret deal was apparently struck as early as
November 2002 - at a time when the administration
insisted that no decision had yet been made to go to
war. (22)
KBR is also making money in other
ways, including a $36 million contract to rebuild and
operate Camp Arifjan (a US Army base in Kuwait), a $28
million program to build and maintain prisoner-of-war
camps, and a $62 million undertaking to feed and house
troops in Iraq. These projects are carried out in the
context of an exclusive US Army contract awarded in
December 2001, under which the company provides a broad
range of logistical services to army troops deployed
outside the United States. With the mushrooming of US
military bases in the past two years, Halliburton has
set up shop in Afghanistan, Uzbekistan, Djibouti, Cuba
(Guantanamo Bay) and now Iraq. The 2001 contract - the
Logistics Civil Augmentation Program or Logcap in
Pentagon-lingo - spans a decade and has no cost cap.
Because the company receives a set percentage of its
contract-related expenses, it has an incentive to bill
more in order to maximize profits. (23)
What
merits such generosity? Perhaps it has nothing to do
with the fact that Dick Cheney used to be the
Halliburton CEO. (Although Cheney sold his Halliburton
stock when he left the company to run for vice
president, he still receives annual deferred
compensation payments until 2005. (24) Perhaps it's
irrelevant that Joe Lopez, a military aide to Cheney
when he was defense secretary in the early 1990s and who
was subsequently hired by Halliburton at Cheney's
suggestion, is in charge of KBR's Pentagon contracts.
(25) After all, the vice president's office and
Halliburton spokespeople strenuously deny that any
favoritism is involved in the awarding of these
contracts.
Halliburton may be qualified for the
job, but its performance has not exactly been free of
blemish. The December 2001 contract was awarded even
though KBR had been sued for overbilling the army
between 1995 and 1997, allegedly to the tune of $6
million. The company paid $2 million to settle but did
not admit any wrongdoing. (26) There have been other
irregularities as well. Among them are allegations that
the company overcharged the army for support operations
for troops deployed in Bosnia, a deal worth $3 billion
so far. (27) And in 2002, Halliburton was investigated
by the Securities and Exchange Commission for alleged
accounting improprieties during Cheney's tenure. (28)
The political and commercial fates of Dick
Cheney, Halliburton and Iraq have repeatedly
intersected. As defense secretary in the first Bush
administration, Cheney directed the 1991 Gulf War. He
also initiated the policy to make much greater use of
private contractors in running military bases. This
practice is now a major profit center for Halliburton.
After the war - Cheney took the CEO job after Bush
Senior lost his re-election bid - Halliburton made money
by selling oilfield supplies to Iraq and helping it to
repair some of the war damage incurred due to US
bombing. (29) As George W Bush's vice president, Cheney
was a major player in drumming up support for the
recently concluded war, and now his former company again
stands to benefit handsomely from the carnage in Iraq.
The future of Iraq's oil
Following a
quarter century of wars and international sanctions,
Iraq's oil industry is dilapidated and in need of
extensive rehabilitation. Halliburton and others are set
to make a killing on related work. But beyond
reconstruction, a big outstanding question concerns
Iraq's longer-term oil development. How much will Iraqi
production capacity expand in coming years? Who will
decide? Will there be a big role for foreign
multinationals, bringing 30 years of state control to an
end?
Iraqi oil - plentiful, of high quality,
cheap to produce - is indeed a major prize for any oil
company. Although many companies continue to explore for
oil in far-flung places, often under forbidding physical
conditions, the Middle East harbors most of the world's
remaining oil. In the 1960s, the world oil industry
discovered an average of 47 billion barrels per year.
But as companies concentrated their search outside the
Middle East (in response to nationalization in most
Organization of Petroleum Exporting Countries (OPEC)
countries), the annual rate of discovery plummeted to 35
billion barrels in the 1970s, 24 billion in the 1980s,
and a mere 14 billion in the 1990s. (30) Against the
background of ever-rising demand, there is simply no
avoiding the Middle East.
Assuming a significant
role for foreign companies - which is what Philip
Carroll and others have indicated (31) - who will get
preferential access to Iraq's riches? To what extent
will existing contracts concluded by Russian, French and
Chinese companies with Saddam's regime be upheld? Before
the war, there were thinly veiled threats that companies
whose home governments refused to support an invasion
would be shown the door. By implication, the big winners
in such a reshuffling were to be the US and British
companies - ExxonMobil, Chevron-Texaco, BP, Shell -
which were left out in the cold by the nationalization
of 1972.
It's possible that the Russians, French
and others will not be entirely excluded, if only to
induce them to accept and legitimate the new masters of
Iraq. But the manner in which the reconstruction
contracts have been handled to date suggests a
winner-take-all attitude in Washington. In a recent
interview, Philip Carroll hinted again that contracts
signed with Saddam's regime may be voided or subject to
renegotiation. (32)
As of early July, the future
of Iraq's oil is still a matter of speculation. In the
first place, rehabilitating oil facilities and preparing
the ground for an expansion of output will take time.
Current projections are that because of widespread
looting, it will take 18 months just to return to prewar
production levels of 3 million barrels per day. (33) So
it's not surprising that no concessions have been
awarded and no contracts have been negotiated so far.
A two-pillar strategy?
Both Iraq's
desperate need for revenue and the Bush administration's
energy policy preferences point to a future in which
Iraq's immense petroleum deposits will be far more fully
exploited than at any time in the past. But there is the
sticky question of Iraq's future status within OPEC.
Unrestrained Iraqi oil production would
undermine OPEC's ability to set oil prices and might
even trigger a price war among member countries. Though
some have argued for pulling Iraq out of OPEC, several
rounds of talks between the State Department and exiled
Iraqi oil experts reportedly generated broad consensus
that Iraq should remain an OPEC member but be exempt
from the organization's quota restrictions. This option
is also favored by Philip Carroll. (34)
A
weakened OPEC and lower oil prices would not be
unwelcomed by the Bush White House. After all, cheap oil
is an essential ingredient of the administration's
energy policy, which foresees virtually unrestrained
growth of US oil consumption, as spelled out in Dick
Cheney's 2001 task force report. (35)
But there
are other considerations that may yet win the day. If
oil prices dip too low, large segments of US oil
production will be rendered uncompetitive. This outcome
may be less of a concern for the large multinationals,
but it is of critical interest to domestic oil
producers, which form an important part of George Bush's
power base. Very low prices could also trigger greater
political instability among oil producing nations in the
Middle East, potentially undermining US allies in the
region.
In the end, US economic interests
require oil prices that are low but not too low and an
avoidance of wild price swings. Saudi Arabia has long
played a key role in this regard - ensuring stability by
making up for any shortfalls in output elsewhere in the
world and by paring back its own production when supply
gluts threaten to drive prices into the ground.
But in the aftermath of September 11, there are
indications that Saudi Arabia may no longer be as
politically reliable as was once the case. It is in this
context that a boost in Iraqi oil production is
critical. Then, instead of exclusively relying on
Riyadh, Washington could erect Iraq as an alternate
pillar helping to shore up US dominance of the oil-rich
Middle East and ensuring US access to oil on favorable
terms.
For such visions to become reality,
however, Iraq needs to be pacified. The upheaval
following the overthrow of Saddam suggests that it's far
from a foregone conclusion that the occupation regime
will be able to govern Iraq and bend the country to
Washington's designs. The privatization of Iraq's oil
may yet derail, if the occupation regime finds itself
unable to provide a sufficiently secure and stable
investment environment. It would be an ironic outcome if
the very triumph of Donald Rumsfeld's war doctrine -
reliance on "smart" weapons and fewer soldiers to
achieve victory - also meant that there simply weren't
enough occupation forces to pacify Iraq.
Although the Bush administration was exceedingly
well prepared in its drive toward war, it apparently has
given far less thought to maintaining order in the
conflict's aftermath.
Notes
(1) Edmund L Andrews,
"US Focus in Iraq Is on Repairs, Not Building", New York
Times, June 20, 2003.
(2) Edmund L Andrews,
"Iraqi Smugglers Are Brazen and Don't Stop at Oil," and
Neela Banerjee, "Barrels of Oil Exported for the First
Time Since the War," both in New York Times, June 23,
2003.
(3) Felicity Barringer, "Security Council
Almost Unanimously Approves Broad Mandate for Allies in
Iraq," New York Times, May 23, 2003.
(4) The
approved text can be found in: United Nations Security
Council, "Spain, United Kingdom of Great Britain and
Northern Ireland and United States of America: Draft
Resolution," S/2003/556, May 21, 2003.
(5) Ibid;
Colum Lynch, "US Proposes Broader Control of Iraqi Oil,
Funds," Washington Post, May 9, 2003; "US-UK-Spain
Revised Draft Resolution on Post-War Iraq," Global
Policy Forum
(6) "US-UK-Spain Revised Draft
Resolution on Post-War Iraq," Global
Policy Forum
(7) United Nations Security
Council, "Spain, United Kingdom of Great Britain and
Northern Ireland and United States of America: Draft
Resolution," S/2003/556, May 21, 2003.
(8)
Edmund L Andrews, "Overseer in Iraq Vows to Sell Off
Government-Owned Companies," New York Times, June 23,
2003.
(9) Donald L Barlett and James B Steele,
"Iraq's Crude Awakening," Time,
May 10, 2003
(10) The Transnational
Foundation (Sweden.
(11) Neil King, Jr,
"Bush Officials Devise a Broad Plan for Free-Market
Economy in Iraq," Wall Street Journal, May 1, 2003.
(12) Ibid.
(13) Neela Banerjee, "3 Get
Top Posts to Revive Iraqi Oil Flow," New York Times, May
4, 2003.
(14) Neela Banerjee, "Shell Veteran in
Line for Iraq Oil Post," New York Times, April 3, 2003.
(15) Peter S Goodman, "US Advisor Says Iraq May
Break with OPEC," Washington Post, May 17, 2003.
(16) Neela Banerjee, "Oil Experts Say US Hasn't
Come to Grips with Blueprint for Industry," New York
Times, April 23, 2003.
(17) Danny Penman, "US
Firms Set for Postwar Contracts," The Guardian, March
11, 2003; Sheryl Fred, "Postwar Profiteers", TomPaine.com;
Robert Bryce and Julian Borger, "Cheney Is Still Paid by
Pentagon Contractor", The Guardian, March 12, 2003.
(18) Dan Baum, "Nation Builders for Hire," New
York Times Magazine, June 22, 2003.
(19) Mark
Fineman, "Getting Iraq's Oil Pumping Again," Los Angeles
Times, April 22, 2003.
(20) Edward Epstein,
"Firm Linked to Cheney Wins Oil-Field Contract," San
Francisco Chronicle, March 8, 2003.
(21) US
Army Corps of Engineers, "DoD Mission for Repair and
Continuity of Operations of the Iraqi Oil
Infrastructure,"; Mark Fineman, "Halliburton Unit's Bill
for Iraq Work Mounts," Los Angeles Times, May 9, 2003;
Edward Epstein, "Congress Curious About Iraq Deals," San
Francisco Chronicle, May 20, 2003.
(22) Jason
Leopold, "Defense Dept Secretly Tapped Halliburton Unit
to Operate Iraq's Oil Industry," ZNet, May 13, 2003, as
reposted on Global
Policy Forum
(23) Lisa Myers and NBC News
investigative team, "Halliburton Cash Registers Ring in
Iraq," MSNBC.com, May 3, 2003.
(24) Robert Bryce
and Julian Borger, "Cheney Is Still Paid by Pentagon
Contractor," The Guardian, March 12, 2003.
(25)
Jeff Gerth and Don Van Natta, Jr, "In Tough Times, a
Company Finds Profit in Terror War," New York Times,
July 13, 2002.
(26) Keith Ashdown, "Hail to the
Chief Executive Officer," The Waste Basket (Taxpayers
for Common Sense), August 9, 2002.
(27)
"Halliburton Unit Got Exclusive Military Bid," CBS
News.com, August 4, 2002,
(28) Farhad
Manjoo, "War Inc," Salon.com, March 17, 2003.
(29) Greater use of private contractors and
Halliburton sales to Iraq from Dan Baum, "Nation
Builders for Hire," New York Times Magazine, June 22,
2003.
(30) "Oil War," BBC, March 26, 2003, as
reposted in Global
Policy Forum
(31) Peter S Goodman, "US
Advisor Says Iraq May Break With OPEC," Washington Post,
May 17, 2003.
(32) Ibid.
(33) Neela
Banerjee, "Barrels of Oil Exported for the First Time
Since the War," New York Times, June 23, 2003.
(34) Carola Hoyos, "Exiles Call for Iraq to Let
in Oil Companies," Financial Times, April 7, 2003; Peter
S Goodman, "US Advisor Says Iraq May Break with OPEC,"
Washington Post, May 17, 2003.
(35) National
Energy Policy Development Group, Reliable,
Affordable, and Environmentally Sound Energy for
America's Future (Washington: US Government Printing
Office, May 2001).
Michael Renner
is a senior researcher at
Worldwatch Institute and a policy analyst for Foreign
Policy In Focus.
(Posted with permission
from Foreign Policy in Focus)
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