Oil, Iraq and America

Oil, Iraq and America

For more from Hiro on Iraq, read Iraq: In the Eye of the Storm, a short, lucid primer recently published by NationBooks.


Of the two slogans that the Bush Administration has coined to sell the idea of invading Iraq–installing democracy and monopolizing Iraq’s petroleum riches–the one about democracy means little to ordinary folks. It is the prospect of uncontested access to the world’s second-largest oil reserves–leading to the end of America’s growing reliance on petroleum from Saudi Arabia, the homeland of most of the 9/11 hijackers–that excites popular imagination in the United States. And the US hawks, who are determining Iraq policy, know it.

Interestingly, there is a rare concurrence of perception between Americans and Iraqis at both official and popular levels regarding the centrality of Iraqi oil to the current crisis and the earlier conflicts with Baghdad. “The weapons of mass destruction is just an excuse,” says Tariq Aziz, Iraq’s deputy prime minister. “The Americans are after the Iraqi oil.” Many months earlier, Muhammad Bagga, an elderly resident of Saddam City, Baghdad, explained the 1991 Gulf War to me thus: “The big Western powers got angry because Saddam Hussein wanted to benefit all Arabs from Iraq’s oil; and so they attacked us.”

Thinking in parallel with the Pentagon’s top civilians, who regularly feed the media with reassuring scenarios of surgical strikes against the Saddam regime and negligible “collateral damage,” America’s petroleum optimists visualize the US oil corporations acquiring an unimagined cornucopia the moment the Iraqi dictator is ousted.

Showing a deplorable ignorance of the events of the Gulf War–when retreating Iraqi troops set ablaze 640 oil wells in Kuwait–their scenario makes no mention of highly probable, or even possible, torching of Iraqi wells by Saddam’s embittered partisans.

True, these fires can be extinguished, as they were in Kuwait. But there is a crucial difference between then and now. Whereas the Iraqi soldiers vacated Kuwait and returned home, the future Saddamist saboteurs, sustained by a sullen, recently disempowered minority, would stay on in the country’s oil regions, making it hazardous for US oil corporations to function normally.

Moreover, the scenario of Iraq’s oil flowing straight into American gas tanks is predicated on immediate, undisputed access to the commodity by US companies after the post-Saddam regime tears up thirty major oil-development contracts that the ousted government had signed.

This assumption is grossly unrealistic, given the impressive array of powerful countries whose oil companies have inked contracts with Saddam, and the unpredictability of how his regime would be ousted.

What if it is toppled by a domestic coup? The expected friendliness of the succeeding regime with Washington would not automatically translate into cancellation of contracts with the petroleum corporations of France, Russia, China, India, Canada, Spain, the Netherlands, Vietnam and many others. The alternative is, of course, an invasion by the United States or by a US-led coalition, resulting in the defeat and toppling of Saddam’s regime.

In either case, going by the examples of the political overthrows of the past, the removal of the top leadership will leave intact the bureaucracies, administrative and economic. They will, as before, insist on maintaining continuity and honoring past commitments. So, at its most optimistic, American oil corporations will get entangled in legal wrangles, national and international.

The process of non-American oil and gas corporations acquiring stakes in Iraq’s bountiful hydrocarbons got going in the spring of 1997, after the UN’s oil-for-food scheme, introduced the previous December, brought relief to Iraqis and restored confidence in the durability of the Saddam regime in the international community (apart from the US-British alliance).

A consortium of Russian companies, led by the state-owned Lukoil, took a 75 percent share (with the state-owned Iraq National Oil Company taking 25 percent) of a joint corporation to develop the West Qurna oilfield in southern Iraq, which holds 11 billion barrels–a third of the total US oil reserves–and extract oil over the next twenty-three years. Then came the China National Petroleum Corporation and its agreement to develop the Adhab oilfield.

Their lead was followed by Total Societe Anonyme of France (now TotalFinaElf), which agreed to develop Nahr Omar oilfield in the south–almost as bountiful as the West Qurna. Then Ranger Oil of Canada secured a $250 million contract for field development and exploration in the Western Desert, followed by India’s Oil & Natural Gas Corporation and Reliance Petroleum’s signing of a deal to develop the Tuba oilfield.

Since then, the Saddam government has accelerated the pace of allocating oil contracts to foreign companies, with some of these deals expected to yield a 20 percent rate of return, according to oil experts at Deutsche Bank.

In the course of back-room bargaining to secure Moscow’s endorsement for UN Security Council Resolution 1441 on disarming Iraq, the Americans reportedly reassured the Russians that their oil contracts with the Saddam regime would be honored. If so, others too–including the French, Chinese, Indians and Spaniards–will certainly insist on the same treatment concerning the agreements their companies have reached with Baghdad. So there would be very little, if any, oil left for the US companies to extract.

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