Impassable Hurdles

Garner's successor, L. Paul Bremer III, found himself dealing with Philip Carroll--former Chief Executive Officer of the American operations of (Anglo-Dutch) Royal Dutch Shell in Houston--appointed by Washington as the Iraqi oil industry's supreme boss. Carroll decided not to tinker with the industry's ownership and told Bremer so. "There was to be no privatization of Iraqi oil resources or facilities while I was involved," Carroll said in an interview with the BBC's Newsnight program on March 17, 2005.

This was, however, but a partial explanation for why Bremer excluded the oil industry when issuing Order 39 in September 2003 privatizing nearly 200 Iraqi public sector companies and opening them up to 100 percent foreign ownership. The Bush White House had also realized by then that denationalizing the oil industry would be a blatant violation of the Geneva Conventions which bar an occupying power from altering the fundamental structure of the occupied territory's economy.

There was, as well, the vexatious problem of sorting out the thirty major oil development contracts Saddam's regime had signed with companies based in Canada, China, France, India, Italy, Russia, Spain, and Vietnam. The key unresolved issue was whether these firms had signed contracts with the government of Saddam Hussein, which no longer existed, or with the Republic of Iraq, which remained intact.

Perhaps more important was the stand taken by Grand Ayatollah Ali Sistani, the senior Shiite cleric in the country and a figure whom the occupying Americans were keen not to alienate. He made no secret of his disapproval of the wholesale privatization of Iraq's major companies. As for the minerals--oil being the most precious--Sistani declared that they belonged to the "community," meaning the state. As a religious decree issued by a grand ayatollah, his statement carried immense weight.

Even more effective was the violent reaction of the industry's employees to the rumors of privatization. In his Newsnight interview Jibury said, "We saw an increase in the bombing of oil facilities and pipelines built on the premise that privatization is coming."

In the immediate aftermath of the invasion, much equipment was looted from pipelines, pumping stations, and other oil facilities. By August 2003, four months after American troops entered Baghdad, oil output had only inched up to 1.2 million barrels per day, about two-fifths of the pre-invasion level. The forecasts (or dreams) of American planners' that oil production would jump to 6 million barrels per day by 2010 and easily fund the occupation and reconstruction of the country, were now seen for what they were--part of the hype disseminated privately by American neocons to sell the idea of invading Iraq to the public.

With the insurgency taking off, attacks on oil pipelines and pumping stations averaged two a week during the second half of 2003. The pipeline connecting a major northern oil field near Kirkuk--with an export capacity of 550,000-700,000 barrels per day--to the Turkish port of Ceyhan became inoperative. Soon, the only oil being exported was from fields in the less disturbed, predominantly Shiite south of Iraq.

In September 2003, President Bush approached Congress for $2.1 billion to safeguard and rehabilitate Iraq's oil facilities. The resulting Task Force Shield project undertook to protect 340 key installations and 4,000 miles (6,400 km) of oil pipeline. It was not until the spring of 2004 that output again reached the pre-war average of 2.5 million barrels per day--and that did not hold. Soon enough, production fell again. Iraqi refineries were, by now, producing only two-fifths of the 24 million liters of gasoline needed by the country daily, and so there were often days-long lines at service stations.

Addressing the 26th Oil and Money conference in London on September 21, 2005, Issam Chalabi, who had been an Iraqi oil minister in the late 1980s, referred to the crippling lack of security and the lack of clear laws to manage the industry, and doubted if Iraq could return to the 1979 peak of 3.5 million barrels per day before 2009, if then.

Meanwhile, the Iraqi government found itself dependent on oil revenues for 90 percent of its income, a record at a time when corruption in its ministries had become rampant. On January 30, 2005, Stuart W. Bowen, the special inspector general appointed by the U.S. occupation authority, reported that almost $9 billion in Iraqi oil revenue, disbursed to the ministries, had gone missing. A subsequent Congressional inspection team reported in May 2006 that Task Force Shield had failed to meet its goals due to "lack of clear management structure and poor accountability", and added that there were "indications of potential fraud" which were being reviewed by the Inspector General.

The endorsement of the new Iraqi constitution by referendum in October 2005 finally killed the prospect of full-scale oil privatization. Article 109 of that document stated clearly that hydrocarbons were "national Iraqi property". That is, oil and gas would remain in the public sector.

In March 2006, three years after the Anglo-American invasion of Iraq, the country's petroleum exports were 30 percent to 40 percent below pre-invasion levels.

Iraq's Flawed Hydrocarbon Law

In February 2007, in line with the constitution, the draft hydrocarbon law the Iraqi government presented to parliament kept oil and gas in the state sector. It also stipulated recreating a single Iraqi National Oil Company that would be charged with doling out oil income to the provinces on a per-capita basis. The Bush administration latched onto that provision to hype the 43-article Iraqi bill as a key to reconciliation between Sunnis and Shiites--since the Sunni areas of Iraq lack hydrocarbons--and so included it (as did Congress) in its list of "benchmarks" the Iraqi government had to meet.

Overlooked by Washington was the way that particular article, after mentioning revenue-sharing, stated that a separate Federal Revenue Law would be necessary to settle the matter of distribution--the first draft of which was only published four months later in June.

Far more than revenue sharing and reconciliation, though, what really interested the Bush White House were the mouthwatering incentives for foreign firms to invest in Iraq's hydrocarbon industry contained in the draft law. They promised to provide ample opportunities to America's oil majors to reap handsome profits in an oil-rich Iraq whose vast western desert had yet to be explored fully for hydrocarbons. So Bush pressured the Iraqi government to get the necessary law passed before the parliament's vacation in August--to no avail.

The Bush Administration's failure to achieve its short-term objectives does not detract from the overarching fact--established by the copious evidence marshaled in this article--that gaining privileged access to Iraqi oil for American companies was a primary objective of the Pentagon's invasion of Iraq.

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