The Battle for Iraqi Oil

The Battle for Iraqi Oil

Until there is a legitimate government in Iraq, it’s unclear whether any new oil deals will stand.


David Horgan opposed the war on Iraq, but in other ways he is an antiwar protester’s worst nightmare: The oil executive freely admits that he is in the bombed-out country “for greed and glory.” His goal is a mammoth oil deal for the small Irish company he works for, Petrel Resources. Still, amid the shooting and kidnappings and chaos, the wiry 43-year-old Irishman says he will be satisfied with even crumbs. “A crumb in Iraq,” he says eagerly, eyes widening, “would be hundreds of millions of dollars at present value. It is high risk, in every sense, but it is an excellent play.”

Horgan is no newcomer to Iraq and to this particular “play.” He dealt with the administration of Saddam Hussein and he is willing to do business with whoever comes next, even a US puppet, as he believes it will be. “We’ll deal with the puppet,” he said one day at the Baghdad Sheraton, as a group of Nepalese Gurkha warriors clomped past loaded with body armor and rifles. “Any puppet will have exactly the same objectives and worries. His first priority is to get the oil flowing.” That may sound cynical, but at least it sounds honest–which is more, as Horgan points out, than the Bush Administration can say about its justification for invading Iraq.

A little time with Horgan in Baghdad opens up a window on one of the most important but confusing elements of postwar Iraq: the upcoming battle for control of its vast oil reserves. Before the war, US Defense Secretary Donald Rumsfeld famously announced that this war had “literally nothing to do with oil,” while antiwar protesters chanted “no blood for oil,” in the streets. Since then there has been very much blood, and surprisingly little oil. New exploration of Iraq’s untapped fields is at a virtual standstill; the repair of the old fields has been notoriously slow. A little-known statistic: According to international oil traders, the United States is currently importing 500,000 barrels of Iraqi oil per day (a type of oil charmingly called “Basrah Light”), down from more than 700,000 per day last February, before the war started. I caught up with Horgan one day outside the Iraqi Oil Ministry. He was dressed in a gray suit that flapped in the dry hot wind. More and more, amid the chaos, power over oil seems to be slipping back into the hands of the Iraqi bureaucracy. The ministry is an eleven-story edifice of the typical squat Stalinist design, the color of desert dirt. The place is bristling with coils of razor wire slung like giant slinkies, and a machine-gun bunker protected by sandbags is set on each side of the entrance. Inside it has the bustling ambience of a run-down betting parlor. Most maps and contracts are off-limits, and mustached bodyguards lounge about on the plush executive floor, with pistols of various makes and calibers in their belts.

But there are rarities here, tidbits of information that would make an oilman’s nose twitch. The well-lit library is full of dusty tomes with titles like The Sedementology of the Euphrates Formation and Floraminera and Biostratratology of Some Late Cretacean Sediment of Northern Iraq. That day Horgan was dropping off a series of seismic readings he had carried back with him to Ireland from the last visit, and he was picking up some large-scale maps, which, he said, “had heretofore been military secrets, believe it or not.”

Perhaps Horgan finds it easy to do business in Iraq because the bombed-out buildings of Baghdad and the nightly shootings and explosions are somewhat reminiscent of the Belfast of his youth. He and the other children would throw rocks at the British soldiers, he said. “Sometimes they’d charge at you in the armored vehicles and scatter the kids.” In 1999, Horgan and other Petrel executives made their first visit to Baghdad, where they joined the herd of international companies tugging at Saddam Hussein’s sleeve. Sure, UN sanctions were in place, but companies were jostling for position when the walls eventually would come tumbling down. The Iraqis were glad to talk. “More than eighty-five companies were negotiating with us at that time,” recalled Ali Hammadi, an executive at the Iraqi Oil Ministry. In an interview, he dressed in a well-ironed blue shirt and sat behind an expansive wooden desk. Through the window was a view of the sprawling derelict Iraqi Olympic compound once headed by Saddam Hussein’s son Uday. “We had plans, tremendous plans,” Hammadi said, waving his hand to show the size. Hammadi has a cosmopolitan air and wears tinted glasses. “I negotiated with Russians, Italians, Germans and Canadians.” Even American firms pursued their prospects, through European interests, as did the Chinese, the Indonesians and the Indians.

Ali Hammadi says many of the shoppers in this international oil bazaar were interested in a vast region known only as the “Western Desert”–inhabited by nomadic tribesman and virtually unexplored. The Western Desert is what one international oil consultant, his voice mockingly falling to a worshipful murmur, called the “Holy Grail” of the oil industry. Iraqi oil is miraculously cheap to pump out of the ground, costing about a dollar a barrel. Iraqis in general seem to have a touch of pride about their oil. “It comes up to the ground,” one man told me, smiling. “I’ve seen it seeping up.” Another one laughed one day: “You put a pipe in the ground and oil comes out.” The chief wells are to the North, near Kirkuk, where sabotage keeps production down, and to the South, near Basra. But the Western Desert offers untold riches. Horgan says Petrel Resources reached an agreement under Saddam to explore a chunk of the Western Desert known as Block 6. It was, he says, signed by a high-ranking Iraqi official, although, crucially, it was not ratified by Saddam Hussein. “We think it’s a valid agreement,” he insists.

Iraq’s current American rulers are studiously noncommittal about contracts signed under Saddam. For to understand Iraqi oil development, it’s clear that there is not just the one Iraqi Oil Ministry but a parallel “shadow” ministry run by American advisers. To get to the Coalition Provisional Authority’s shadow ministry of oil requires a trip to the “Green Zone”–a giant sprawl smack in the middle of Baghdad. Here, one would have no idea that Iraq is populated by Iraqis. At the perimeter, an Iraqi man manages to wander through toting a shopping bag with bootleg pornographic DVDs for sale, but on this compound air-conditioned minibuses take US contractors and soldiers and civilian government officials to their work sites. There is a three-mile running track, a swimming pool, a fitness center, even a barber shop and beauty salon run by Halliburton’s Kellogg Brown & Root. And deep inside Saddam Hussein’s former palace, where the top coalition supervisors have burrowed in, is the bustling air-conditioned office where the American advisers run their oil operation. They are on personal-services contracts, like hockey players who have signed to a team. One man, who spoke on condition of anonymity, dismissed Horgan’s claims of an agreement with a shake of his head. “A lot of people believe they have agreements,” he said. Which is to say, in reality, that no one knows what will happen to the deals made before the invasion. The CPA says that any contract that violated the old UN rules is illegal, but that leaves a lot of wiggle room.

David Horgan doesn’t care what the coalition thinks in any case. “The weird thing is,” he said, “the CPA, they have no clue. They never go anywhere. They never go out. We ignore them. Why would we even talk to the coalition?” He has never ventured into the Green Zone. Much of the world thought the war would result in a flurry of business activity, with the world’s oil giants sweeping through Iraq like a killer whale through a school of fat salmon. That didn’t happen. One reason is that it’s probably the most dangerous place in the world for an oil executive right now. The Exxons and the Shells and BPs don’t want to deal with the physical risk to their executives. In the barricaded hotels that house expatriates there are a swarm of former Gurkhas, French Foreign Legionnaires and Special Forces veterans trained in every army between New Zealand to the Netherlands. Still, the supply doesn’t meet the threat. Horgan is one of the few Western oilmen to be found in Iraq, and he shuns the security guards, whom he dismisses as goons and mercenaries. “They’re going to draw attention to you. The best thing is just to use humor, make eye contact with people, smile at them.”

Horgan’s happy theory is that the rebels who have been attacking US troops and their allies use discretion: “The working assumption is that there’s some sort of discipline and control over these rebels and they distinguish between friendly neutrals and coalition nationals.” He nodded, “That’s our working assumption.”

But an even more significant reason the big boys from the oil industry are staying clear is the legal black hole into which they’d be stepping. After all, until there is a legitimate sovereign government in Iraq, it is unclear whether any new long-term oil exploration deals will stand. As one American attached to Paul Bremer’s shadow ministry told me one day, “We’re not a legitimate government.” That means most of that untouched oil underneath the desert sand is off-limits–and all the oil giants can only stare, like alcoholics looking at liquor bottles in a shuttered shop. No one, at present, has the shop keys.

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Katrina vanden Heuvel
Editorial Director and Publisher, The Nation

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