Editor's note: This is the second part of a series on the
struggle for control of Iraq's oil resources and
self-determination. Go here to read the
first installment.
With 140,000 U.S. troops on the ground, the largest U.S. embassy
in the world sequestered in Baghdad's fortified "Green Zone" and an
economy designed by a consulting firm in McLean, Va., post-invasion
Iraq was well on its way to becoming a bonanza for foreign
investors.
But Big Oil had its sights set on a specific arrangement -- the
lucrative production sharing agreements that lock in
multinationals' control for long terms and are virtually unheard of
in countries as rich in easily accessible oil as Iraq.
The occupation authorities would have to steer an ostensibly
sovereign government to the outcome they desired, and they'd have
to overcome any resistance that they encountered from the fiercely
independent and understandably wary Iraqis along the way. Finally,
they'd have to make sure that the Anglo-American firms were
well-positioned to win the lion's share of the choicest
contracts.
Dealing with the most likely points of opposition began almost
immediately. While the Oil Ministry, famously, was one of the few
structures the invading forces protected
from looters in the first days of the war, the bureaucracy's
human assets weren't so lucky. With a stroke of the pen, Coalition
Provisional Authority boss L. Paul Bremer fired hundreds of
ministry personnel, ostensibly as part of the program of
"de-Baathification." But, as Antonia Juhasz, author of "The Bush
Agenda," told me, "it wasn't an indication that they were a
party to Saddam Hussein's crimes … they were fired because they
could have stood in the way of the economic transformation." Some
fraction were certainly hard-core Baathists, but they were all
veterans of the country's oil sector; they knew the industry, they
knew what the norms in neighboring countries were and they had no
loyalty to the occupation forces. Some had to go.
That was true at the top as well. Serving as oil minister in the
Iraqi Interim Government was Thamir Ghadbhan, a British-trained
technocrat who at one time had been chief of planning under Saddam
Hussein and was widely respected for his political independence and
his opposition to the previous regime (Saddam had ended up
imprisoning him at Abu Ghraib). But despite working closely with
American advisors, Ghadbhan was replaced with Ibrahim Bahr
al-Uloum, a close associate of Ahmed Chalabi, the exile favored by
some war planners to run the country as a kindler and gentler --
but no doubt just as corrupt -- version of Saddam Hussein.
According to Greg Muttit, an analyst with the British oil
watchdog Platform, Uloum at first seemed to be a malleable figure.
He told the Financial Times that he personally favored PSAs
and giving priority to U.S. oil companies "and European companies,
probably."
But Uloum would later publicly protest the elimination of fuel
subsidies, a key provision of the country's economic restructuring,
saying, "This decision will not serve the benefit of the government
and the people. This decision brings an extra burden on the
shoulders of citizens." He was, as the Associated
Press reported, given "a forced vacation." It was, in the end,
a permanent vacation; Chalabi, who was deputy prime minister at the
time, took over the job himself (as "acting" minister for 30 days,
but his term would last a year). Chalabi had no previous experience
in the oil biz, but was a reliable, pro-Western figure with little
in the way of nationalist zeal to get in the way of being a good
lap dog. As leader of the Iraqi National Congress, he had said he
favored the creation of a U.S.-led consortium to develop Iraq's oil
fields. "American companies will have a big shot at Iraqi oil,"
Chalabi told the
Washington Post
in 2002.
According to Alexander Cockburn, Chalabi also orchestrated the
ouster of Mohammed Jibouri, executive director of the state's oil
marketing agency, who had offended the Swiss giant Glencore by
telling its executives that they couldn't trade Iraqi oil after
their extensive dealings with Saddam Hussein.
An emerging, although still fragile, civil society was another
source of potential trouble. Iraqi trade unions were a thorn in the
side of the CPA -- shutting down the port of Khor az-Zubayr
in protest of a rip-off deal with the Danish shipping giant Maersk,
halting oil
production in the south to demand the rehire of laid-off Iraqi
workers and kicking
Halliburton subsidiary Kellogg, Brown and Root out of their
refineries. Perhaps it's not a coincidence, then, that the only
significant law that Paul Bremer left on the books from the Hussein
era was a prohibition against organizing public-sector workers.
Raed Jarrar, an Iraqi analyst with the NGO Global Exchange, told
me, "They're having a lot of legal problems."
Of course, none of that guaranteed that the Iraqis would stay on
the preferred path, especially after the election of an ostensibly
sovereign government.
And that's where the most common -- almost ubiquitous -- tool of
neocolonialism, debt, came into play. In this case, massive,
crushing debt run up by a dictator who treated himself and his
cronies to palaces and other luxuries, spent lavishly on weapons
for Iraq's war with Iran -- fought in part on behalf of the United
States -- and owed Kuwait billions of dollars in reparations for
the 1990 invasion.
To put Iraq's foreign debt in perspective, if the country's
economy were the size of the United States', then its obligations
in 2004, proportionally, would have equaled around $55
trillion, according to IMF figures (and that doesn't include
reparations from the first Gulf War).
Clearly, that amount of debt was unsustainable, and the Bush
administration launched a full-court press to get creditor nations
to forgive at least part of the new government's debt burden.
Former Secretary of State James Baker, long the Bush family's
"fixer," was dispatched on a tour of the world's capitals to cut
deals on behalf of the Iraqis.
The administration raised eyebrows in the NGO community when it
adopted the language of debt-relief activists to frame their pitch.
Bush, and Baker, called it "odious" debt, debt that financed the
whims of a brutal dictator and used against the interests of the
Iraqi population. Under international law, "odious" debt, in theory
at least, doesn't need to be forgiven; it's written off as a
dictator's illicit gains. As one might expect, wealthy creditor
nations have long resisted the concept.
Debt-relief activists Basav Sen and Hope Chu wrote that the
move "seemed inexplicable at first." But it soon became clear that
Iraq's debt-relief program was, in fact, a way of locking in Iraq's
economic transformation.
The largest chunk of debt, $120 billion, was owed to the Paris
Club, a group of 19 industrialized nations. Baker negotiated a deal
whereby the Paris Club would forgive 80 percent of Iraq's debt, but
the catch -- and it was a big one -- was that Iraq had to agree to
an economic "reform" package administered by the International
Monetary Fund, an institution dominated by the wealthiest countries
and infamous across the developing world for its painful and
unpopular Structural Adjustment Protocols.
The debt would be written off in stages; 30 percent would be
cancelled outright, another 30 percent when an elected Iraqi
government accepted an IMF structural reform agreement and a final
20 percent after the IMF had monitored its implementation for three
years. This gave the IMF the role of watchdog over the country's
new economy, despite the fact that its share of the country's debt
burden was less than 1 percent of the total.
Among a number of provisions in the IMF agreement, along with
privatizing state-run companies (which resulted in the layoffs of
an estimated 145,000 Iraqis), slashing government pensions and
phasing out the subsidies on food and fuel that many Iraqis
depended on, was a commitment to develop Iraq's oil in partnership
with the private sector. Then-Finance Minister Adel Abdul Mehdi
said, none too happily, that the deal would be "very promising to
the American investors and to American enterprise, certainly to oil
companies." The Iraqi National Assembly released a statement
saying, "the Paris Club has no right to make decisions and impose
IMF conditions on Iraq," and called it "a new crime committed by
the creditors who financed Saddam's oppression." And Zaid Al-Ali,
an international lawyer who works with the NGO Jubilee Iraq,
said it was
"a perfect illustration of how the industrialized world has used
debt as a tool to force developing nations to surrender sovereignty
over their economies."
The IMF agreement was announced in December of 2005, along with
a new $685 million IMF loan that was to be used, in part, to
increase Iraq's oil output. The announcement came a month after
Iraqis went to the polls to vote for their first government under
the new Constitution in order, according to the Washington
Post, to spare Iraqi "politicians from voters' wrath." That was
a wise idea; immediately following the agreement, gas prices skyrocketed
and Iraqis rioted.
The icing on the cake is that the deal James Baker negotiated
with the Paris Club refers to Iraq as an "exceptional situation";
no precedent was set that would allow other highly indebted
countries saddled with odious debt from their own past dictators to
claim similar relief.
The deadline the Iraqi government must meet for the completion
of its final oil law in December is a "benchmark" in the IMF
agreement.
In an investigation for
the Nation, Naomi Klein discovered that Baker had pursued
his mission with an eye-popping conflict of interest. Klein
discovered that a consortium that included the Carlyle Group, of
which Baker is believed to have a $180 million stake, had
contracted with Kuwait to make sure that the money it was owed by
Iraq would be excluded from any debt-relief package. When Baker met
with the Kuwaiti emir to beg forgiveness for Iraq's odious debt, he
had a direct interest in making sure he didn't get it.
Another major creditor was Saudi Arabia. The Carlyle Group has
extensive business dealings with the kingdom and Baker's law firm,
Baker Botts, was representing the monarchy in a suit brought by the
families of the victims of 9/11.
The most recent IMF report (PDF)
shows how successfully he failed: "While most Paris Club official
creditors have now signed bilateral agreements, progress has been
slow in resolving non-Paris Club official claims, especially those
of Gulf countries," it says. It's likely that Iraq, a country
occupied for three years, devastated by 12 years of sanctions and
with a per capita GDP of $3,400, will end up paying reparations to
Kuwait, a country with a per capita GDP of over $19,000, for the
five months Saddam occupied his neighbor in late 1990 and early
1991.
Iraq will still face a mountain of debt even if it meets all of
the "benchmarks" required of it -- the IMF expects the country's
debt service to equal five percent of its economic output in 2011
and warns that even a minor price shock in the oil market "would
require significant borrowing from the international markets to
close the financing gaps."
"Sovereign" debt is transferable between governments; if a new
strongman arises or Iraq becomes a loose federation, the debt will
remain on the books and defaulting on it, while a possibility, has
serious long-term consequences.
All of this is about bringing different forms of pressure onto
Iraq's nascent government, not controlling it, and it's an
important distinction. Before and since the "handover" to Iraq's
government, the Green Zone has been overrun with "advisers" from
Big Oil. Aram Roston wrote, "It's clear that there is not just the
one Iraqi Oil Ministry, but a parallel 'shadow' ministry run by
American advisers." In business, that's known as "positioning."
Phillip Carroll, a former chief executive with Royal Dutch/Shell
and a 15-member "board of advisors" were appointed to oversee
Iraq's oil industry during the transition period. According to the
Guardian
,
the group "would represent Iraq at meetings of OPEC." Carroll had
been working with the Pentagon for months before the invasion --
even while the administration was still insisting that it sought a
peaceful resolution to the Iraq crisis -- "developing contingency
plans for Iraq's oil sector in the event of war." According to the
Houston Chronicle, "He assumed his work was completed, he
said, until Defense Secretary Donald Rumsfeld called him shortly
after the U.S.-led invasion began and offered him the oil adviser's
job." Carroll, in addition to running Shell Oil in the United
States, was a former CEO of the Fluor Corp., a well-connected oil
services firm with extensive projects in Saudi Arabia and Kuwait,
and at least $1.6 billion in contracts for Iraq's reconstruction.
He was joined by Gary Vogler, a former executive with ExxonMobile,
in Iraq's Office of Reconstruction and Humanitarian Assistance.
After spending six months in the post, Carroll was replaced by
Robert E. McKee III, a former ConocoPhillips executive. According
to the
Houston
Chronicle
, "His selection as the Bush administration's
energy czar in Iraq" drew fire from congressional Democrats
"because of his ties to the prime contractor in the Iraqi oil
fields, Houston-based Halliburton Co. He's the chairman of a
venture partitioned by the … firm."
The administration selected Chevron Vice President Norm
Szydlowski to serve as a liaison between the Coalition Provisional
Authority and the Iraqi Oil Ministry. Now the CEO of the
appropriately named Colonial Pipeline Co., he continues to work
with the Iraq Energy Roundtable, a project of the U.S. Trade and
Development Agency, which recently sponsored a meeting to "bring
together oil and gas sector leaders in the U.S. with key decision
makers from the Iraq Ministry of Oil."
Terry Adams and Bob Morgan of BP, and Mike Stinson of
ConocoPhillips would also serve as advisors during the
transition.
After the CPA handed over the reigns to Iraq's interim
government, the embassy's "shadow" oil ministry continued to work
closely with the Iraqis to shape future oil policy. Platform's Greg
Muttit wrote that "senior oil advisers -- now based within the Iraq
Reconstruction Management Office (IRMO) in the U.S. Embassy ...
included executives from ChevronTexaco and Unocal." After the
handover, a senior U.S. official said: "We're still here. We'll be
paying a lot of attention, and we'll have a lot of influence. We're
going to have the world's largest diplomatic mission with a
significant amount of political weight."
The majors have also engaged in good, old-fashioned lobbying. In
2004, Shell advertised for an Iraqi lobbyist with good contacts
among Iraq's emerging elites. The firm sought "a person of Iraqi
extraction with strong family connections and an insight into the
network of families of significance within Iraq." According to
Platform,
just weeks after the invasion, in a meeting with oil company execs
and Australian Foreign Minister Alexander Downer in London, former
British Foreign Secretary Sir Malcolm Rifkind promised to
personally lobby Dick Cheney for contracts on behalf of several
firms, including Shell.
Meanwhile, major oil firms were positioning themselves so that
they'd have the best contacts in the new government. According to
the Associated
Press, "The world's three biggest integrated oil companies" --
BP, ExxonMobil and Royal Dutch/Shell -- "struck cooperation or
training deals with Iraq" in 2005. "It's a way to maintain contact
and get the oil officials to know about them," former Iraqi Oil
Minister Issam Chalabi told the AP. And it seems to have worked; in
May, Iraq's current oil minister, Husayn al-Shahristani, said that
one of his top priorities would be to finalize an oil law and sign
contracts with "the largest companies."
Washington has its hands all over the drafting of that law.
Early on, in 2003, USAID commissioned BearingPoint, Inc. to submit
recommendations for the development of Iraq's oil sector.
BearingPoint was the firm that designed the country's economic
transformation under a previous USAID contract, so it was no
surprise that its report reinforced the preference for PSAs that
"everybody [kept] kept coming back to" during meetings of the State
Department's "Future of Iraq Project."
In February, just months after the Iraqis elected their first
constitutional government, USAID sent a BearingPoint adviser to
provide the Iraqi Oil Ministry "legal and regulatory advice in
drafting the framework of petroleum and other energy-related
legislation, including foreign investment." According to Muttit,
the Iraqi Parliament had not yet seen a draft of the oil law as of
July, but by that time it had already been reviewed and commented
on by U.S. Energy Secretary Sam Bodman, who also "arranged for Dr.
Al-Shahristani to meet with nine major oil companies -- including
Shell, BP, ExxonMobil, ChevronTexaco and ConocoPhillips -- for them
to comment on the draft."
All of these points of pressure are only what we can see in the
light of day. There is certainly much more occurring under the
table. Raed Jarrar told me that he "was personally familiar with
the kind of intimidation that can be brought by both the U.S.
military and civilian" personnel, and that he would be shocked if
"multiple millions of dollars in bribes" were not changing hands.
The IMF noted in its latest report (PDF)
that "corruption related to the production and distribution of
refined fuel products was rampant." Last March, 450 Oil
Ministry employees were fired for suspected corruption, and
Mohammed al-Abudi, the Oil Ministry's director general for
rrilling, said that "administrative corruption" was pervasive. "The
robberies and thefts are taking place on a daily basis on all
levels," he said, "committed by low-level government employees and
by high officials in leadership positions of the Iraqi state." The
same day that the U.N. legitimized the occupation, George Bush
signed Executive Order 13303 providing full legal immunity to all
oil companies doing business in Iraq in order to facilitate the
country's "orderly reconstruction."
Yet, despite a five-year effort, Big Oil still sits on the
sidelines, wary of the disorder and violence that's plagued the
country. Ironically, it appears that China may well receive
the first deal in post-Saddam Iraq (although it's one
negotiated with Hussein's government before the war). The Kurdish
autonomous zone has signed three PSAs -- none with the majors --
although there is some
dispute about their validity (and, at this writing, there are
reports that the Kurds are
in negotiations with Royal Dutch/Shell and BP, among
others).
At this point, the situation is very fluid. Last week, Iraqis
were shocked when a controversial
measure that might lead to the country's effective breakup was
passed by Parliament by one vote. The major Sunni parties and
Muqtada al Sadr's ministers boycotted the vote in outrage. Muddying
the waters further is a heated debate about whether a somewhat
ambiguous provision in the Iraqi Constitution already gives
provincial governments the right to hold on to oil revenues rather
than send them to the central government. The results of all of
these debates will have an enormous impact on Iraq's chances to
build an autonomous and potentially prosperous country down the
road.
It's possible that the administration and its partners badly
overplayed their hand. Iraq's new government stands on the verge of
a complete meltdown, faced with a crisis of legitimacy based
largely on the fact that it is seen as collaborating with American
forces. Overwhelming majorities of Iraqis of every sect believe the
United States is an occupier, not a liberator, and is convinced
that it intends to stay in Iraq permanently. "If you go in front of
Parliament, Raed Jarrar told me, "and ask: 'who is opposed to
demanding a timetable for the Americans to withdrawal?' nobody
would dare raise their hand." The passage of a sweetheart oil law
could prove to be a tipping point. It's also possible Iraq's
government won't make it to December; at this writing, rumors of a
"palace coup" are swirling around Baghdad, according to Iraqi
lawmakers.
What is clear is that the future of Iraq ultimately hinges to a
great degree on the outcome of a complex game of chess -- only part
of which is out in the open -- that is playing out right now, and
oil is at the center of it. It's equally clear that there's a
yawning disconnect between Iraqis' and Americans' views of the
situation. Erik Leaver, a senior analyst at the Institute for
Policy Studies in Washington, told me that the disposition of
Iraq's oil wealth is "definitely causing problems on the ground,"
but the entire topic is taboo in polite D.C. circles. "Nobody in
Washington wants to talk about it," he said. "They don't want to
sound like freaks talking about blood for oil." At the same time, a
recent poll asked Iraqis what they believed was the main reason for
the invasion and 76 percent gave "to control Iraqi oil" as their
first choice.
Correction: an earlier version of this article identified
BearingPoint, Inc. as a company spun off from Arthur Anderson
Consulting. It is a spin-off from KPMG, LLC.
Tagged as:
iraq, oil, bush, cartel
Joshua
Holland is an AlterNet staff writer.
If I may interject a couple of related fiction works on role reversal and behavior, the novel ‘Lord of the Flies’ basically makes the statement that man is inherently evil, as a group of young innocent school boys transform into a tribe of deceit and murder. While only a classic work of fiction, many see this story as a true reflection of man’s instinctive darker side.
On a lighter note, the 1983 movie ‘Trading Places’ with Eddie Murphy takes light-hearted look at role reversal between rich man-poor man.
Whether were talking fiction, scientific studies, or real world examples, such as Nazi Germany, mob mentality, or simply peer pressure, it appears that some people do become a product of their surroundings, and I think this is what the Sanford experiment was trying to prove. However, psychology is not always a black and white subject, and any related experiments will always be open to interpretation, as Brian has done here.
Ken Stringer, Atlanta, GA
June 09, 2008 11:19pm