Page 1 of 2 The Iraqi oil conundrum
By Michael Schwartz
How the mighty have fallen. Just a few years ago, an overconfident George W
Bush administration expected to oust Iraqi dictator Saddam Hussein, pacify the
country, install a compliant client government, privatize the economy, and
establish Iraq as the political and military headquarters for a dominating US
presence in the Middle East.
These successes were, in turn, expected to pave the way for ambitious goals,
enshrined in the 2001 report of vice president Dick Cheney's secretive task
force on energy. That report focused on exploiting Iraq's monstrous, largely
untapped energy reserves - more than any country other than Saudi Arabia and
Iran - including the quadrupling of Iraq's capacity to pump oil and the
privatization of the production process.
The dream in those distant days was to strip the Organization of the Petroleum
Exporting Countries (OPEC) - the cartel consisting of the main petroleum
exporters - of the power to control the oil supply and its price on the world
market. As a reward for vastly expanding Iraqi production and freeing its
distribution from OPEC's control, key figures in the Bush administration
imagined that the US could skim off a small proportion of that increased oil
production to offset the projected $40 billion cost of the invasion and
occupation of the country.
All in a year or two.
Almost seven years later, it will come as little surprise that things turned
out to cost a bit more than expected in Iraq and didn't work out exactly as
imagined. Though the March 2003 invasion quickly ousted Saddam Hussein, the
rest of the Bush administration's ambitious agenda remains largely unfulfilled.
Instead of quickly pacifying a grateful nation and then withdrawing all but
30,000-40,000 American troops (which were to be garrisoned on giant bases far
from Iraq's urban areas), the occupation triggered both Sunni and Shi'ite
insurgencies, while US counterinsurgency operations led to massive carnage, a
sectarian civil war, the ethnic cleansing of Baghdad, and a humanitarian crisis
that featured hundreds of thousands of deaths, four million internal and
external refugees, and an unemployment rate that stayed consistently above 50%
with all the attendant hunger, disease, and misery one would expect.
In the meantime, the government of Shi'ite Prime Minister Nuri al-Maliki,
fervently supported by the Bush administration and judged by Transparency
International to be the fifth-most corrupt in the world, has morphed into an
ever less reliable client regime.
Despite American diktats and desires, it has managed to establish cordial
political and economic relationships with Iran, slow the economic privatization
process launched by the neo-con administrators sent to Baghdad in 2003, and
restored itself as the country's primary employer. It even seems periodically
resistant to its designated role as a possible long-term host for an American
military strike force in the Middle East.
This resistance was expressed most forcefully when Maliki leveraged the Bush
administration into signing a status of forces agreement (SOFA) in 2008 that
included a full US military withdrawal by the end of 2011. Maliki even demanded
- and received - a promise to vacate the five massive "enduring" military bases
the Pentagon had constructed - with their elaborate facilities, populations
that reach into the tens of thousands, and virtually no Iraqi presence, even
among the thousands of unskilled workers who do the necessary dirty work to
keep these "American towns" running.
Despite such setbacks, the Bush administration did not abandon the idea that
Iraq might remain the future headquarters for a US presence in the region, nor
in the 2008 presidential election did candidate Barack Obama. He, in fact,
repeatedly insisted that the Iraqi government should be a strong ally of the US
and the most likely host for a 50,000-strong military force that would "allow
our troops to strike directly at al-Qaeda wherever it may exist, and
demonstrate to international terrorist organizations that they have not driven
us from the region."
Since entering the Oval Office, Obama has not visibly wavered in the commitment
to establish Iraq as a key Middle East ally, promising in his State of the
Union Address that the US would "continue to partner with the Iraqi people"
into the indefinite future. In the same address, however, the president
promised that "all of our troops are coming home," apparently signaling the
abandonment of the Bush administration's military plans. Secretary of Defense
Robert Gates, on the other hand, has recently voiced a contrary vision, hinting
at the possibility that the Iraqis might be interested in negotiating a way
around the SOFA agreement to allow US forces to remain in the country after
Dynamic paralysis keeps Iraqi oil underground
Iraqi oil, too, has been a focus of Washington's unremitting ambition tempered
by failure. Long before the cost of the war began to lurch toward the current
congressional estimate of $700 billion, the idea of using oil revenues to pay
for the invasion had vanished, as had the idea of quadrupling production
capacity within a few years.
The hope of doing so someday, however, remains alive. Speculation that Iraq's
production could - in the not too distant future - exceed that of Saudi Arabia
may still represent Washington's main strategy for postponing future severe
global energy shortages.
Even before the attacks of September 11, 2001, the secretive energy task force
vice president Cheney headed was tentatively allocating to key international
oil companies various oil fields in a future pacified Iraq. Before the March
2003 invasion, the State Department actually drafted prospective legislation
for a post-Hussein government, which would have transferred the control of key
oil fields to foreign oil giants. Those companies were then expected to invest
the necessary billions in Iraq's rickety oil industry to boost production to
Not so long after US troops entered Baghdad, the administration's proconsul, L
Paul Bremer III, enacted the State Department legislation by fiat (and in clear
violation of international law, which prohibits occupying powers from changing
fundamental legislation in the conquered country). Under the banner of
de-Ba'athification - the dismantling of Saddam Hussein's Sunni ruling party -
he also fired oil technicians, engineers, and administrators, leaving behind a
skeleton crew of Iraqis to manage existing production (and await the arrival of
the oil giants with all their expertise).
Within a short time, many of these pariah professionals had fled to other
countries where their skills were valued, creating a brain drain that, for a
time, nearly incapacitated the Iraqi oil industry. Bremer then appointed a
group of international oil consultants and business executives to a newly
created (and UN-sanctioned) Development Fund of Iraq, which was to oversee all
of the country's oil revenues.
The remaining Iraqi administrators, technicians, and workers soon mounted a
remarkably determined and effective multi-front resistance to Bremer's effort.
They were aided in this by a growing insurgency.
In one dramatic episode, Bremer announced the pending transfer of the control
of the southern port of Basra (which then handled 80% of the country's oil
exports) from a state-run enterprise to KBR, then a subsidiary of Halliburton,
the company vice president Cheney had once headed. Anticipating that their own
jobs would soon disappear in a sea of imported labor, the oil workers
immediately went on strike. KBR quickly withdrew and Bremer abandoned the
In other Bremer initiatives, foreign energy and construction firms did take
charge of development, repair, and operations in Iraq's main oil fields. The
results were rarely adequate and often destructive.
Contracts for infrastructure repair or renewal were often botched or left
incomplete, as international companies ripped out usable or repairable
facilities that involved technology alien to them, only to install ultimately
incompatible equipment. In one instance, a US$5 million pipeline repair became
an $80 million "modernization" project that foundered on intractable
engineering issues and, three years later, was left incomplete. In more than a
few instances, local communities sabotaged such projects, either because they
employed foreign workers and technicians instead of Iraqis, or because they
were designed to deprive the locals of what they considered their "fair share"
of oil revenues.
In the first two years of the occupation, there were more than 200 attacks on
oil and gas pipelines. By 2007, 600 acts of sabotage against pipelines and
facilities had been recorded.
After an initial flurry of interest, international oil companies sized up the
dangers and politely refused Bremer's invitation to risk billions of dollars on
Iraqi energy investments.
After this initial failure, the Bush administration looked for a new strategy
to forward its oil ambitions. In late 2004, with Bremer out of the picture,
Washington brokered a deal between US-sponsored Iraqi prime minister Iyad
Allawi and the International Monetary Fund. European countries promised to
forgive a quarter of the debts accumulated by Saddam Hussein, and the Iraqis
promised to implement the US oil plan.
But this worked no better than Bremer's effort. Continued sabotage by
insurgents, resistance by Iraqi technicians and workers, and the corrupt
ineptitude of the contracting companies made progress impossible. The
international oil companies continued to stay away.
In 2007, under direct US pressure, virtually the same law was reluctantly
endorsed by Prime Minister Maliki and forwarded to the Iraqi parliament for
legislative consideration. Instead of passing it, the parliament established
itself as a new center of resistance to the US plan, raising myriad familiar
complaints and repeatedly refusing to bring it to a vote. It lies dormant to