Mission: Iraqi Oil

Antonia Juhasz is the author of The Bush Agenda: Invading the World, One Economy at a Time (HarperCollins, 2006).  She is the Ida Tarbell Fellow at Oil Change International and a Visiting Scholar at the Institute for Policy Studies.

Multinational Monitor: How important was oil as a motivation for the U.S. war in Iraq?

Antonia Juhasz: I’d say it was the central motivator. It is certainly a motivation for the Bush administration to get U.S. corporations access to Iraq’s oil simply because those companies want it and want to profit from it. But even more important is having control, or being in a position to have control, of Iraq’s oil, the second largest oil reserves in the world. This control is a key element for the Bush administration’s aspirations to maintain U.S. global hegemony and hegemony in the Middle East. It boosts the United States as a power player vis-à-vis China, vis-à-vis India. And it puts the United States in a position to continue to be the dominant force in the region, which is useful for those who are very supportive of Israel within the administration, and helps to create the United States as a bulwark against Iran.

So, oil is about a lot of things. And all of those things, I believe, were in the forefront of the minds of the Bush administration officials as they entered office and made plans for war against Iraq, and for how they were going to replace Saddam Hussein’s government.

MM: What’s the evidence for these assertions?

Juhasz: The most importance evidence comes from the writings of the Bush administration and members of the administration, starting even before they entered office.

The most specific evidence begins with the meeting of the Cheney Energy Task Force and the high priority the task force gave to gaining greater access to Middle East oil for U.S. companies in general, and to Iraqi oil in particular. The task force put together a list entitled “Foreign Suitors to Iraqi Oil” in which they identified the companies that Saddam Hussein was signing oil contracts with. All of these companies were from countries that also happened to sit on the [United Nations] Security Council. What was clear was that Saddam Hussein was finally providing access to Iraq’s oil to foreign companies, but doing so to try and get countries to cancel the sanctions against Iraq.

The oil executives and the Bush administration officials on the Cheney Energy Task Force knew that there was tremendous momentum growing within the United States and around the world for eliminating the sanctions on Iraq. If those sanctions were removed while Saddam Hussein was still in power, companies from all of those other countries were going to get their hands on Iraq’s oil, and the United States was going to be shut out. That must have reinforced for them the need for military intervention. The Cheney Energy Task Force actually stated as one of its goals, “gaining greater access for U.S. companies in the region.”

MM: How significant are Iraq’s oil holdings?

Juhasz: Iraq has the second largest oil reserves in the world after Saudi Arabia. There are some who believe that when its western desert is explored, Iraq’s reserves may rival Saudi Arabia’s. Iraq’s oil is well mapped. There are 80 known fields — we know where they are and how much oil is in them. But only 17 have even begun to be developed. It’s very clear where the rest are, they just haven’t been gotten to.

Iraq’s oil is also very inexpensive to get out of the ground. On average, it costs U.S. oil companies $15 to $20 a barrel to get oil out of the ground. In Iraq, it’s estimated that it takes about 60 cents a barrel to get oil out of the ground.

MM: There’s an argument that the United States has no reason to care about who controls reserves because they’re going onto the world market anyway.

Juhasz: First, the Bush administration’s concern about U.S. oil companies having access to Iraqi oil doesn’t necessarily have anything to do with wanting to get that oil to the United States. It has a lot to do with ensuring that those companies are taken care of.

It’s also about demonstrating that that oil is within the field of influence of the United States. The United States certainly has more control if the oil is in the hands of Exxon, or Chevron or Conoco, than if that oil is in the hands of Lukoil, or Staatsolie or Sinotoc. However, for Americans, it should be noted that it isn’t necessarily any sort of guarantee that the United States will have any greater access to gasoline simply because ExxonMobil controls more fields in Iraq. But that doesn’t lessen the benefits for the Bush administration or the executives of ExxonMobil to have ExxonMobil own that field.

MM: You’re talking about spheres of influence — the idea that the United States wants to exercise broad control apart from concern over whether any particular company has access to the oil. What do the concepts sphere of influence, or control, mean in this context? Why are they so important?

Juhasz: As the supply of oil in the world continues to dwindle, having access to oil clearly becomes more important.

China is desperately in search of more oil. It is making deals and entering partnerships, using its financial largesse and trading weapons with more countries, so that it can ensure itself greater access to oil.

There are many within the United States and within the Bush administration that fear China is becoming a powerful political and economic threat to the United States. China’s power enables it to negotiate access to more of the world’s oil, but it also makes it more dependent on foreign oil supplies.

To counter China and other economic competitors, these figures in the administration support the United States doing whatever it can to maintain and cultivate allies in oil-rich countries. That can be done by providing aid and weapons to Middle Eastern countries. It can be done by political machinations to preserve friendly governments that control oil wealth. And it was done by fighting a war to replace one regime in Iraq, Saddam Hussein’s, that was clearly defining its interests counter to U.S. interests.

The Bush administration’s idea was to install a government that was more allied with U.S. government interests, that would be more likely to support U.S. government interests in the region, and that from its own motivations would help provide oil to the United States, or at least U.S. companies. An additional mechanism of ensuring that the United States has regional control and its interests met in Iraq is actually putting that oil in the hands of U.S. oil companies. That has the additional benefit, from their point of view, of ensuring that those companies profit.

MM: Once the initial invasion and first phase of the war was over, the United States created the Coalition Provisional Authority (CPA). How did the CPA manage Iraq’s oil?

Juhasz: When CPA Administrator L. Paul Bremer issued his rapid 100 orders, his 39th order was a privatization order. It made possible the privatization of all of Iraq’s state-owned enterprises. There were definitely those in the administration who thought Iraq’s oil should be included in that measure.

But it seems that others, including the U.S. oil company executives advising the U.S. government, believed that simply outright privatizing Iraq’s oil, particularly under the rubric of the foreign occupation, would lead to great instability and opposition among Iraqis and wouldn’t end up benefiting U.S. oil interests. So a caveat was written into the Bremer order, stating that all state-owned companies were open to privatization except for the initial extraction and processing of natural resources. Iraq’s oil continues to be run by Iraq state-owned oil companies, its oil workers.

The only role of the United States has been undertaking some pipeline repair and advising on what to do with the future of Iraq’s oil. Additionally, U.S. oil companies, as well as Shell and BP, have been marketing Iraq’s oil since the war.

Iraq’s oil production has actually been quite impressive, given the state of the nation. They were producing 2.5 million barrels of oil per day before the invasion. Since the invasion, they’ve been steadily producing between 2 and 2.3 million barrels of oil a day. Last year, Iraq’s oil production brought in about $32 billion worth of income for the government.

MM: How did the U.S. government work to devise a legal framework for turning over control of Iraq’s oil to the U.S. and U.K. multinationals?

Juhasz: The debate began in the U.S. State Department with the participation of U.S. oil companies through lobby groups, such as the International Tax and Investment Center, on whose board sits all the major U.S. oil companies. The issue they faced was: if you’re not going to privatize through the Bremer orders, if you’re not just going to privatize through U.S. fiat, what’s the best way to do it? And the model that was chosen was essentially to pass a law privatizing Iraq’s oil, but to have the Iraqis do it. So, it would be an Iraqi decision by an “elected” Iraqi government.

There is no government in the world, including the United States, that has a fully privatized oil system. The United States comes the closest.

From the very beginning, the U.S. State Department, with the guidance of the U.S. oil executives, opted for one of the most radical concepts, production sharing agreements. These forces, along with BearingPoint — the U.S. consultancy firm that was given the contract for rewriting rules governing Iraq’s entire economic infrastructure, was also employed by the U.S. government to provide ongoing advice to the Iraqi government on oil privatization. U.S. oil company executives also served as advisors to both the U.S. and Iraqi governments on the development of Iraq’s oil. They all began working to turn this idea into an actual law. The former U.S. Ambassador to Iraq, Zalmay Khalilzad, was very outspoken in pushing the oil privatization law forward. The U.S.-appointed first interim prime minister of Iraq, Iyad Allawi, then put forward an oil law, mirroring almost exactly the proposal by the U.S. State Department.

MM: What happened when he presented the scheme?

Juhasz: It was not very well received by the Iraqi interim government, but he did successfully place the issue on the table. At that point, the discussions began and became public. This was just after Bremer left, in June 2004.

U.S. oil companies publicly and regularly held international meetings for Iraqi oil representatives, for the Iraqi government to meet and discuss privatization opportunities in Iraq. They stated that they themselves would not invest in Iraq unless the oil law was passed.

Essentially, the oil law hasn’t really changed since the initial introduction; the debate has been ongoing for four years. Khalilzad was, until he left Iraq, in the middle of every negotiation. Drafts of the oil law would first appear in English and then be translated into Arabic. Each successive Iraqi government has been pressured to pass the law, and to date no Iraqi government has done so.

MM: What did the Iraq Study Group — the Baker-Hamilton Commission — say about oil?

Juhasz: The Iraq Study Group said Iraq is important to the United States and to the world because it has the second largest oil reserves in the world. The Iraq Study Group said that the United States should advise the Iraqis to change their oil system from a national model to a privatized model, that foreign investment should be introduced, and that transforming Iraq’s oil regime should be a key priority of the United States.

These conclusions were not surprising, because much of the Iraq Study Group’s work was done by the Baker Institute, and the Baker Institute also played an early role in helping to advise and devise strategies for reworking Iraq’s oil infrastructure, even before the war began. The Baker Institute, based at Rice University, is named for Bush I Secretary of State James Baker.

They suggested a very simple model: take Iraq from a nationalized system to a privatized system. This was the model put forward by the Baker Institute both before the war and then also as it participated in the Iraq Study Group process. The lead individual on that process at the Baker Institute is Amy Jaffe.

MM: What’s the policy rationale for this approach?

Juhasz: The policy rationale is that since about 1980 and the Iran-Iraq war, Iraq’s oil system has been closed off from the development of new technology in the field of oil exploration and production. Iraq needs foreign investment to update its systems and to use modern methods of oil extraction. The only way for that to happen is if Iraq gives foreign oil companies complete access. Then the foreign oil companies will invest and bring innovations into Iraq, and the system will be running to the best of its capacity. For the technocrats working on this, for the people like Amy Jaffe, that’s their argument.

The Bush administration almost never talks about foreign investment. They claim that Iraq will develop economically as a country if foreign investment is brought in. But what they usually talk about instead is the revenue-sharing component and its ability to create stability.

The opposing rationale is that while Iraqis certainly need foreign expertise, there is no reason why they need to “sell the farm” to get it.  Freed of a foreign occupation, Iraqis may be more likely to do what their neighbors, and most other oil-rich nations in the world do, which is to sign Technical Service Contracts with foreign companies that generally last two to three years and keep decision-making control within the hands of the government.

MM: With the Democrats taking control of Congress, they insisted in 2007 that benchmarks be met for war funding to continue. How did oil play into that?

Juhasz: In January 2007, the President announced the surge. He said the surge would succeed where other U.S. efforts failed because this time the al-Malaki government would be required to meet certain benchmarks. One of those benchmarks was passage of a hydrocarbons law that, he said, would increase investment in Iraq, increase unity and address Iraq’s oil revenues. Following that announcement, the oil law actually passed the Iraqi cabinet for the first time and was ready to be presented to the Iraqi parliament for their consideration.

At that point, it seemed that it was going to be a done deal within a matter of weeks. But as knowledge started growing in Iraq about what the oil law actually entailed — and in February it was actually publicly released for the first time and parliamentarians and the public actually got to see it — opposition just exploded. Soon it was very clear that parliamentarians were going to oppose it. The question was simply whether Bush administration pressure might somehow overwhelm the opposition. The resistance won. And the law was never introduced to the Parliament.

Then the U.S. Congress took up the President’s language in its May 2007 supplemental war spending bill. In the supplemental, Congress said that the Iraqis had to meet the President’s benchmarks, that the benchmarks were critical. The supplemental explained how President Bush said that Iraqis were going to meet the benchmarks, and then repeated the President’s commitment to the benchmarks and the importance of the benchmarks, over and over again. In the outline of what the benchmarks were, however, the Congress only specifically discussed the revenue-sharing component of what has now emerged as a package of laws in Iraq.

There has been tremendous work on the part of nongovernmental organizations and unions, in and outside of Iraq, to raise awareness on this issue. By the time the supplemental came before the Congress for its full consideration, there were members of Congress who were aware of what the oil law really entailed and who opposed inclusion of it as a benchmark.

Unfortunately, the Democratic leadership chose to ignore that knowledge and that opposition, and included in the supplemental a requirement that the Iraqis pass the oil law. If the Iraqi government fails to do so by September, the supplemental states that the U.S. government will cut off of U.S. reconstruction dollars to Iraq.

Again, at this time in May, there was a new, enormous surge of activity between President Bush and al-Malaki, and enormous pressure to get the oil law through before July, which was the midterm report-back date to Congress on the achievement of the benchmarks.

And again the Bush administration and the al-Malaki government failed. And again it was because resistance in Iraq had just exploded, with the oil workers unions and the Federation of Iraqi Unions staging strikes and protests against the oil law, and women’s groups, civil society groups and religious groups, all coming out against the oil law. A hundred or more British Members of Parliament have signed a statement against the oil law, as have six Nobel Peace Prize laureates and 108 Iraqi oil experts. There have been defections within Iraq’s own government; a member of Iraq’s parliamentary energy committee quit in protest the day after the most recent version of the law was introduced in Iraq.

The U.S. pressure still continues. But the opposition to the law has grown as exponentially as the pressure has grown for the Iraqis to pass it.

MM: What is the “oil law” referred to in the benchmarks?

Juhasz: What began as “the oil law” is still the centerpiece in what is now a package of laws. That centerpiece law opens approximately two-thirds of Iraq’s oil to private foreign investment through production sharing agreements.

These production sharing agreements allow foreign investors to control exploration and production decisions for 30 years; and they do not require the foreign investors to share technology, to train Iraqi workers, to invest any of their money back into Iraq; they don’t even have to hire Iraqi workers.

The law only grants the Iraq national oil company control over fields that are currently being developed, which is most likely those 17 fields I mentioned earlier.

The production sharing agreement model is one that no other oil-rich country in the world, except for Russia, uses. Russia uses it only because it was required to by the IMF and the United States, and they have been desperately trying to get out of their production sharing agreements because of the consequences of turning control over oil to foreign companies for 30 years.

Within that oil law, there are three sentences that talk about how Iraq’s oil revenue should be shared. And those three sentences refer to the need to write another law addressing revenue sharing.

Another law has now been drafted on revenue sharing, which does not meet the conditions set out by the Congress in its description of this benchmark in May. The conditions set out by Congress in the supplemental say that Iraq’s oil revenues should be evenly distributed among its regions and people, there should not be preference given based on ethnicity or religious affiliation.

The law that has been drafted and that is on the table in Iraq states that Iraq’s oil revenues — whatever is left over after the foreign companies take their cut — will be used by the federal government to meet its needs, and then out of what’s left the Kurdish regional government will receive 17 percent. That’s it, that’s all it says.
So it certainly doesn’t meet the standard set out by the Congress. It is very clearly understood that the revenue-sharing law is simply a piece of The Oil Law and what The Oil Law is really about is privatization.

There is an international network — in the United States, Europe and Iraq — raising awareness and opposition to the U.S. pressure on the Iraqis to pass the law. And within Iraq, there is widespread opposition to the law. This international network is making it far more difficult for the Bush administration to pressure the Iraqis and has helped create space where the Iraqis can actually learn about the law and voice their opposition.

Everyone thought this law was going to pass because no one knew what it was. Now that people know what it is, it seems far less likely that it will actually pass.