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On the road to Damascus
Oil in the next war will occupy the place of coal in the present
war, or at least a parallel place to coal. The only big potential
supply that we can get under British control is the Persian and
Mesopotamian supply .… Control over these oil supplies becomes a
first class British war aim – Sir Maurice Hankey in 1918 and
Britain’s First Secretary of the War Cabinet
By William Bowles
12/03/05 "ICH" -- -- Anybody
who has read William Engdahl’s excellent
book ‘A Century of War – Anglo-American oil
politics and the New World Order’ (reviewed
here), will not be surprised to learn
that the convoluted machinations of those
who rule empires, whether past or present,
are intrinsic to the workings of the ruling
class. History reveals that a mere handful
relatively speaking of individuals are able
to determine the fate of millions through
the economic and political power they wield.
The role of the political class that
represents the interests of the owners of
economic power is to maintain the rule of
the owners of capital by making damn sure
that opposition is neutralised and/or made
to look ridiculous or ultimately ‘removed’.
Hence the ‘loony left’, ‘fellow travellers’,
‘dinosaurs’ et al are but a few of the
pejoratives the corporate/state-run media
use to marginalise the views of those who
oppose such power.
But in times of crisis and failing
propaganda and persuasion, more extreme
measures need to be taken and such people
and movements need to be re-labelled as
‘extremists’ or a ‘danger to the state’.
Laws are passed making such opposition
illegal, such as those now being enacted,
even thinking ‘seditious’ thoughts become
the subject of the state’s wrath.
A quick scan of the media
reveals the tactics used; President Chavez
is described as a ‘leftist with
authoritarian ambitions’, Castro as a
‘Marxist dictator’, and anybody who opposes
the rule of capital is invariably labelled
as an ‘opponent of the free market’ or
‘anti-privatisation’; a ‘demagogue’ and so
on and so forth. Attempts are made to link
‘leftists’ to ‘extremists’ and even to
‘terrorists’. Such terms, in use for so
long, trigger conditioned reflexes in the
reader, the associations are buried deep in
the public’s mind as ‘received opinion’; all
thinking ceases; we metaphorically salivate
when we hear or read the terms and dismiss
such people and ideas as beyond the pale or
even dangerous to our health.
Critics of those of us who
analyse the workings of our rulers are quick
to dismiss us as ‘conspiracists’, nutty
people who apparently have nothing else to
do with our time but weave complex plots,
spun out of what are, at least according to
the pundits, accidents of time and place,
mere serendipity. This is of course a tactic
to relegate our opinions to ‘Area 51’, and
obviously there are those who do spin
complex webs, making connections where none
exist.
But connections do
exist between events, else there would be no
cause and effect, no one with interests and
objectives they’d rather not reveal to the
world for what they are, vested interests
and real criminal conspiracies. That it’s
governments or business doing the conspiring
doesn’t make them any the less conspiracies,
indeed it makes them all the more dangerous
because of the immense power they wield.
Without connections the world would be one
of chaos and happenstance, a world where as
Margaret Thatcher said, “there is no such
thing as society”, an obviously loony idea
but one that has a subversive appeal, as it
implies that circumstances are ultimately
beyond our control hence why bother as there
is nothing we can do about it. The
implication is that we are at the mercy of
‘natural’ forces, hence capitalism for
example, is a ‘force of nature’. The
intended result of course is that we adopt a
position of fatalism, very convenient for
our rulers, they can get on with the
business of ruling undisturbed by ‘winters
of discontent’.
The problem of course is
that any investigation of events does reveal
vested interests, possessing economic and
political power is not an accident and
rarely is its possession the result of good
intentions or a social conscience. As
Engdahl’s book reveals, the past 100 years
and more have been shaped by a small group
of individuals who possess vast wealth
intimately connected to an equally small
group of people who possess enormous
political power. The centres of their
economic power are predictably energy,
banking, weapons and communications and
maintaining control of such enormous power
inevitably connects directly into the
comparable key areas of government; trade,
investment, ‘defence’ and foreign policy.
Those who sit on the boards of big
corporations are also found in key
government positions and they regularly make
the trip back and forth between the two in a
revolving door relationship. The examples
are numerous, the most obvious being for
example in the UK, the relationship between
the Blair government and
British Petroleum or in the US, between
the Bush regime and Halliburton and the big
oil companies.
Is identifying such
connections an invention, a conspiracy or a
reflection of the common interests of those
who hold economic power and the political
class that seeks to maintain an environment
that preserves that power? Most importantly,
to what lengths will they go in order to
maintain their power? Considering what’s at
stake it is no surprise that there is
virtually nothing they won’t do in order to
maintain the status quo including murdering
their own citizens, attacking sovereign
states, concocting ‘threats’ and fabricating
entire ‘histories’ to justify their
piratical ways. The apologists for such
activities would have us believe that such
actions belong to the past, the past being
conveniently, well before the current crop
of rulers inherited power.
St. Paul, on the road to
Damascus is said to have gone through a
major conversion, he proverbially ‘saw the
light’ and in all likelihood there are many
of us who experienced a comparable flash of
illumination when the forces of Darkness
invaded Iraq and came to rational and
well-founded conclusions about the
relationship between war and economics – the
two go hand-in-hand, to pretend otherwise is
either sheer ignorance or deliberate
deception.
The mainstream media was
(and still is) all to quick to condemn all
those who cried ‘it’s all about oil’ as
‘conspiracists’ and in their haste to
condemn us they revealed much about their
own ideological leanings, leanings that
would have us believe that the invaders were
actually operating out of concern for the
Iraqi people. Indeed, the mainstream media
was awash with apologists for the invaders.
Most are now noticeable by their absence
given the results of the invasion and
occupation. Most noticeable is the absence
of any alternative explanation for the
invasion except the laughable “failure of
intelligence”, which only a cretin would
actually believe.
By 2010 we will
need on the order of an additional fifty
million barrels a day. So where is the
oil going to come from? .… While many
regions of the world offer great oil
opportunities, the Middle East with two
thirds of the world’s oil and the lowest
cost, is still where the prize
ultimately lies – Dick Cheney
in 1999, then CEO of oil services
company Halliburton
So, is it all about oil? For
over 100 years oil has been lifeblood of
capitalism, two world wars have been waged
over possession of it, but not merely its
possession but because without it, the
larger economic objectives of capitalism
would be unrealisable, hence to say it’s all
about oil is only part of the answer. Oil
fuels the armies, powers the factories and
control of its production and distribution
enables the West to exert control over the
natural resources needed to make the entire
shambolic enterprise lurch from crisis to
crisis and of course, make profits for the
shareholders. It is, when all’s said and
done, astounding simple, one might say
juvenile were it all not so murderous of
millions.
British officials
believed that the area [the Middle East]
was a “vital prize for any power
interested in world or domination[2],
while their US counterparts saw the oil
resources of Saudi Arabia as a
“stupendous source of strategic power
and one of the greatest material prizes
in world history”.
A report, ‘Crude Designs –
The rip-off of Iraq’s oil wealth’,
available here, is a comprehensive
analysis of the centrality of oil to the
invasion of Iraq and for anyone who is
really interested in the real motivations
behind the invasion and occupation, it is
required reading. I’ll do my best to produce
an overview of its findings as understanding
what is really going on is central to
countering all the nonsense surrounding the
policies and actions of our governments and
those who would condemn us as
‘conspiracists’ or defend the motivations of
our rulers as ‘humanitarian’.
Much has been made in the
corporate/state-run media of Blair being
some kind of ‘restraining influence’ on Bush
and the ‘neo-cons’ but as the report makes
abundantly clear, US-UK foreign and energy
and military policies are ‘joined at the
hip’ and have been so for the past century
and in spite of the rivalries. As Jack Straw
made clear in January 2003,
“…one of the Foreign
Office’s seven priorities was “to
bolster the security of British and
global energy supplies.” The geography
of such a strategy had been spelled out
in the 1998 Strategic Defence Review
White Paper:
Outside Europe our
interests are most likely to be affected
by events in the Gulf and Mediterranean.
Instability in these areas also carries
wider risks. We have particularly
important national interests and close
friendships in the Gulf. Oil supplies
from the Gulf are crucial to the world
economy.”
And lest anyone think that
the UK government’s relationship with the
major oil companies is not central, a later
paper states that a key objective is to
“improve investment
regimes and energy sector management in
these regions [the Middle East, parts of
Africa and the former Soviet Union],
focusing on key links in the
supply chain to the UK [emph.
in the original]”
And, as the report
demonstrates the US-UK relationship is no
‘one-night- stand’, but an on-going
relationship a century-old. Moreover the
label ‘neo-con’ is a total misnomer, for
whilst it may well be true that Bush is some
kind of weird Christian fundamentalist and
his close associates are heavily involved
with Israel’s imperialist strategy, it is a
big mistake to confuse the ideology of Bush
or that of Israel with the fundamental
strategic/economic interests of the US (and
UK).This is made
abundantly clear by the ‘parting of the
ways’ of the ‘traditionalists’ within the US
ruling elite currently taking place as the
Middle East strategy of the Bush regime goes
pear-shaped, revealing the fact that as long
as objectives can be realised, Bush’s
‘peculiar’ ideas are neither here nor there
in the larger scheme of things.
Importantly, the policies
of America and Britain are coordinated. The
US-UK Energy Dialogue – a bilateral
initiative established during the April 2002
meeting of Prime Minister Blair and
President Bush in Crawford, Texas,[3] and
designed to “enhance coordination and
cooperation on energy issues” – demonstrates
the close convergence of Anglo-American
views and interests on Middle Eastern oil.
The relationship between
economics and politics is revealed by the
following quote taken from the Executive
Summary
The development model
being promoted in Iraq, and supported by
key figures in the [Iraqi] Oil Ministry,
is based on contracts known as
production sharing agreements (PSAs),
which have existed in the oil industry
since the late 1960s. Oil experts agree
that their purpose is largely political;
technically they keep legal ownership in
state hands, while practically
delivering oil companies the same
results as the concession agreements
they replaced.[1]
The report describes the
background as well as the context leading up
to the invasion and occupation; the key
players and their interests and connections
as well as supplying a detailed analysis of
the effects of the Iraqi ‘government’
signing away not only its one and only
natural resource, oil, but in doing so, also
renouncing its sovereignty and democratic
control over it.As
the report states, “PSAs are effectively
immune from public scrutiny and lock
governments into economic terms that cannot
be altered for decades”. The potential
losses to the Iraqi people are staggering,
the most conservative estimates puts it at
$94 billion over the usual
(25 year length of a PSA contract) assuming
oil at $40 per barrel and $250
billion if the cost is $50 per
barrel!
The degree of influence of
both the US and UK governments over future
Iraqi oil policy is revealed by the
following
“We discuss with the
Iraqi Ministries their priorities on a
regular basis.”[4] Freedom of
information requests on the nature of
the discussions have been turned down
because advice was “voluminous”.[5]
So too with the US. When the
Coalition Provisional Authority ‘handed over
power’ to the Iraqi Interim Government, a
senior US 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.”[6]
An important aspect of the
debate around Iraq’s oil has hinged on the
issue of ‘privatisation’ which has,
according to the report obscured the nature
of the PSA, for as the report states, it’s
“who gets the revenue and who controls the
way in which oil is developed” that counts.
PSAs first appeared in
Indonesia in the late 1960s (not
surprisingly following the US-inspired and
backed overthrow of Sukarno). PSAs are an
“ingenious arrangement” as “PSAs shift the
ownership of oil from companies to the
state, and invert the flow of payments
between state and company.”
Traditionally, the
relationship between the foreign oil
companies and the state was based on royalty
payments (and still is in the major oil-
producing countries of the world such as
Kuwait, Saudi Arabia and Venezuela), with
the oil company taking the investment risk.
PSAs reverse this process. PSAs are an
ingenious arrangement for although “… the
oil is still legally in the hands of the
state, foreign companies are compensated for
their investment in oil production
infrastructure and for the risks they take.”
PSAs are
“A convenient marriage
between the politically useful symbolism
of the production-sharing contract
(appearance of a service contract to the
state company acting as master) and the
material equivalence of this contract
model with concession/licence regimes in
all significant aspects…The government
can be seen to be running the show – and
the company can run it behind the
camouflage of legal title symbolising
the assertion of national
sovereignty.”[7]
The report states the
following facts about PSAs
-
A right to oil
reserves.
Companies want a deal that guarantees
their right to extract the reserves for
many years, thus ensuring their future
growth and profits. Furthermore, they
want a contract that allows them to
‘book’ these reserves – including them
in their accounts – which increases
their company value. Production sharing
agreements, like concession contracts,
permit companies to book reserves in
their accounts.
-
An opportunity to
make large profits.
Generally, oil companies make their
profits from investing and risking their
capital. In some cases, they lose their
capital, for example when they drill a
‘dry well’. But in some cases they will
find large and hugely profitable fields.
Oil companies are therefore very
different from service companies like
Halliburton, which make money from fixed
fees on predictable contracts. Oil
companies aim for deals which may be
more speculative, but which give them a
chance of making super-profits.
Production sharing agreements are
designed to allow companies to achieve
very large profits if successful.
-
Predictability of
tax and regulation. While
companies can accept exploration risk
(that they won’t find oil) or price risk
(that the oil price falls), both being
beyond their control, they try to manage
‘political risk’ (that tax or regulatory
demands will increase) by locking in
governments. They thus seek to bind
governments into long-term contracts
that fix the terms of their investment.
Production sharing agreements generally
last for 25 to 40 years with terms
protected from potential change by
incoming governments.
PSAs are also incredibly
complex legal documents that require an army
of sophisticated legal eagles not only to
draft but to understand.
PSAs generally consist of
several hundred pages of legal and
financial language (often treated as
commercially confidential). It is their
complexity, not their simplicity, which
is advantageous to oil companies … [O]il
companies dislike royalties and prefer
systems based in an assessment of
profits, such as PSAs. The reason is
that they want what they call ‘upside’
(i.e. opportunities for greater profits)
– ways they can reduce their payments,
rather than being subject to a fixed
level of payment for oil extracted … The
more complicated the system, the more
opportunities there are for a company to
maximise their share of the revenue by
sophisticated use of accountancy
techniques.
What we call ‘creative
accounting’ of the kind Enron was so adept
at. And the potential profits are
“staggering”, as much 178 per cent compared
to an average 12 per cent return on
investment, assuming oil at $40 a barrel,
not very likely in the near term. With
current price at around $60 per barrel, the
oil execs are salivating at the thought of
getting their hands on the biggest oil
reserves on the planet (from 100-200 billion
barrels).
“Production-sharing deals
allow oil companies a favourable profit
margin and, unlike royalty schemes,
insulate them from losses incurred when
the oil price drops. For years, big oil
companies have been fighting for such
agreements in countries such as Kuwait
and Saudi Arabia.”[8]
The corporate lobby group
ITIC (the International Tax & Investment
Centre) with most of its 110 listed sponsors
large corporations a quarter of which are
oil companies is perhaps the best example of
the role of big capital in ripping off Iraq
and it advocates the use of PSAs. Yet the
report’s assessment is that it is
… difficult to overstate
how radical a departure PSAs would be
from normal practice, both in Iraq and
in other comparable countries of the
region … Iraq’s neighbours Kuwait, Iran
and Saudi Arabia, foreign control of oil
is ruled out by constitution or by
national law.
But the interim constitution
forced on the Iraqi people made quite sure
that the terms over which Iraq’s oil would
extracted would not be subject to oversight
or control by the Iraqi people,
“Pre-empting both the
Iraqi elections and the drafting of a
new constitution, Allawi’s guidelines
specified that while Iraq’s currently
producing fields should be developed by
the Iraq National Oil Company (INOC),
all other fields should be developed by
private companies, through the
contractual mechanism of production
sharing agreements (PSAs).”[9]
The meshing of state and
business objectives is made clear by the
report and the key role of PSAs play in the
policies of both the US and the UK. If the
US-UK oil companies and their
political/military capos get their way Iraq
“along with much of its
future income, could be surrendering its
democracy as soon as it achieves it.”
That’s assuming it ever gets
a democratic government.
Notes
[1] The terminology of
PSAs labels the private companies as
“contractors”. This report illustrates that
this label is misleading because PSAs give
companies control over oil development and
access to extensive profits.
[2] Introductory paper on
the Middle East by the UK, undated [1947],
FRUS, 1947, Vol. V, p. 569, cited in Mark
Curtis, The Ambiguities of Power (Zed Books,
London, 1995), p. 21
[3] US Department of
Commerce, Memorandum for the President,
Transmittal of the Report on the US-UK
Energy Dialogue, 30 July 2003
[4] Dr Kim Howells MP,
answer to Parliamentary Question by Harry
Cohen MP, 12 July 2005, Hansard column 878W
[5] James McLaughlin (Iraq
Policy Unit, Foreign & Commonwealth Office),
letter to Lorne Stockman (PLATFORM),
response to request under the Code of
Practice on Access to Government
Information, 9 December 2004
[6] Jim Krane, “US will
retain sovereign power in Iraq,” Associated
Press, 21 March, 2004
[7] Professor Thomas W
Wälde, an expert in oil law at the
University of Dundee, ‘The current status of
international petroleum investment:
regulating, licensing, taxing and
contracting’, in CEPMLP Journal, Vol 1,
no.5, July 1995 (pub. University of Dundee)
[8] Carola Hoyos, ‘Exiles
Call for Iraq to Let in Oil Companies’,
Financial Times, 7 April 2003
[9] Energy Compass, ‘Iraq:
Puzzling over the future’, 1 October 200
Crude Designs – The rip-off of Iraq’s oil
wealth.
Lead Publisher
PLATFORM is an interdisciplinary
organisation working on issues of
environmental and social justice.
http://www.carbonweb.org
US co-publishers
Global Policy Forum monitors policy making
at the United Nations, promotes
accountability of global decisions, educates
and mobilizes for global citizen
participation, and advocates on vital issues
of international peace and justice.
http://www.globalpolicy.org
The Institute for Policy Studies.
strengthens social movements with
independent research, visionary thinking,
and links to the grassroots, scholars and
elected officials.http://www.ips-dc.org
Oil Change International campaigns to
expose the true costs of oil and facilitate
the coming transition towards clean energy.
We are dedicated to identifying and
overcoming political barriers to that
transition.
http://www.priceofoil.org
UK co-publishers
The New Economics Foundation (NEF) works to
construct a new economy centred on people
and the environment.
http://www.neweconomics.org
War on Want is a UK-based campaigning
charity. Founded in 1951 it has links to the
labour movement and supports progressive,
people-centred development projects around
the world.
http://www.waronwant.org
Copyright
William
Bowles
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