Who Will Possess Iraq’s Oilfields?

By Karen Button

02/15/06 "
URUKNET" -- -- A friend wrote recently from Occupied Iraq that with the December elections over Iraq had truly been stolen. I thought perhaps they were referring to the stamp of legitimacy elections would give Iraq’s American-approved government, but they were actually talking about the final pieces falling in to place for those who’ve long coveted Iraq’s oilfields.

The "how" begins with Iraq’s new constitution; written largely behind closed doors and with tremendous US influence, it was voted into place during October’s referendum. Cleverly, it gives the impression that Iraq’s oil will remain in the hands of its people by guaranteeing "oil and gas is the property of all the Iraqi people" and that revenues from "current fields" will be fairly distributed across the provinces. The key phrase is "current fields;" in the following section the document then requires all future exploration use "the most modern techniques of market principles and encouraging investment." The modern investment model being promoted in Iraq during these secret meetings is production sharing agreements, or PSAs.

Mostly political in nature, PSAs maintain the technicality—and just as importantly, the appearance—of keeping oil ownership in government hands, yet the majority of profits goes to private companies. These agreements are generally used in countries where oil is either hard to extract and therefore expensive, or where reserves are small enough that companies may be unwilling to invest. PSAs guarantee a high profit margin, providing an enticement to otherwise uninterested oil companies. In Iraq, where extracting oil is not technologically challenging and reserves are huge, PSAs don’t make sense—unless they are intended to benefit someone other than Iraqis.

Oil driving Iraq policies

While world demand for oil increases, supplies continue to dwindle. In fact, many believe world oil reserves has already reached its peak and is in decline. Numerous citizen groups and non-governmental organisations realise the world must revolutionize its main energy source from fossil fuel to something ecologically sustainable. Yet, with the world’s economic stability deeply linked to oil and the corporations who control it, the fight for possession is fierce. And often deadly…as is the case in Iraq.

An oil company’s economic health is based on its reserves, listed as part of its assets. The problem, says James Paul, executive director of the Global Policy Institute, is that due to these dwindling supplies, there are not enough reserves for these corporations to maintain economic health. "Oil companies cannot replace their reserves. They are frantically looking all over the world. The companies know oil is running out in the world, they just don’t say it. Imagine if oil is $100 a barrel and imagine if your company doesn’t control it."

Then, imagine if those same companies know where to find it.

Iraq has the planet’s second largest known oil reserves. Its untapped fields account for nearly two-thirds of Iraq’s known reserves, estimated to be at least 115 billion barrels. Its al-Majnoon field—a "super-giant" in geological terms—holds an estimated 20 million barrels alone. And that one field, says, Paul would double the oil giant Exxon’s reserves in one fell swoop. He maintains that the cost to produce oil in Iraq is cheap—about $1/barrel—which adds significantly to the profit margin. "If you figure oil at $50 a barrel and multiply it out," Paul explains, "it’s a total profit spread of $1 trillion. That’s more than all companies put together since John D. Rockefeller." As of this writing, oil stands at $61/bbl; it hit $68/bbl last week and is expected to climb again.

Before Saddam Hussein nationalized its fields in 1972, Iraq’s oil was divided according to agreements the British had made during their occupation of Iraq in the early part of the century.

The companies, Shell and Anglo-Persian (which later became BP) had about 50 percent, the French company Foflaq (which later became Total) had about 25 percent, and it was intended, says Paul, that the remainder stay in Iraq’s hands. However, "in the 1920s Churchill convinced the British to give some [percentage] to the Americans, or they would always have trouble." So, Iraq’s portion of their own oil went to a consortium of American companies that included Exxon and Unocal. Now, says Paul, "these companies want back—Shell, BP, Exxon, Chevron—would get the lion’s share."

Iraqi’s organize against globalisation

Iraqi’s though, have no desire to privatise their oilfields. In fact, Iraq’s oil union is quite strong. They reorganised after the US-led invasion by August 2003 into ten state-owned companies in southern Iraq, forming the General Union of Oil Employees (GUOE). In the following months GUOE was instrumental in assisting other labor unions to form. Though GUOE remains independent, other unions have now joined to form the Iraqi Federation of Trade Unions (IFTU). The newly born labor movement is strongest in southern Iraq, but is beginning to gather strength across the country. Now, they are fighting hard for Iraqi jobs—and against globalisation.

Iraqis know full well that oil is the main reason for the US invasion and remains the central project in globalising Iraq’s resources.

Crude Designs, a report published by the UK-based non-governmental organisation Platform and the US’s Global Policy Institute, oil analyst Greg Muttitt says if current plans are approved, Iraqi’s will "lose control of more than 85 percent of their oil resources to foreign multinationals."

The report, published in November, is well-known and hotly debated in Iraq. At the end of November Al-Jazeera news hosted a debate between Muttitt and Ahmad Chalabi, who, along with other interim-government members, participated in State Department hosted talks about PSAs.

According to Crude Designs, production-sharing agreements are "beyond the reach of Iraqi courts, public scrutiny or democratic control." Because they are "subject to commercial confidentiality provisions, PSAs are effectively immune from public scrutiny and lock governments into economic terms that cannot be altered for decades.

"In Iraq’s case, these contracts could be signed while the government is new and weak, the security situation dire, and the country still under military occupation. As such the terms are likely to be highly unfavourable, but could persist for up to 40 years. At an oil price of $40 per barrel, Iraq stands to lose between $74 billion and $194 billion over the lifetime of the proposed contracts."

This is what Iraq’s unions are fighting against. In an excellent article published by the International Longshore and Warehouse Union—the first to call for an end to the US occupation—senior fireman Abdul Faisal Jaleel, from the Basra refinery is quoted. "We reject foreign investment. We want to keep our own oil revenues and use them to develop our country with our own hands."

Last June, at the invitation of US Labor Against the War, six members from GUOE, IFTU, and the Federation of Workers’ Councils and Unions of Iraq toured 25 US cities, educating their union counterparts on the real costs of the occupation. Member unions were hoping to pressure the AFL-CIO into adopting a stance against the occupation. In October, they were successful. For the first time in 50 years, the AFL-CIO spoke against US military action. It called on the US government to bring the troops home "rapidly" and demanded Iraqi "workers be granted internationally recognized labor rights to organize free of interference from government and employers, and to bargain collectively."

Failing economy used to pressure for globalisation

In December though, Iraq’s interim government claimed its debt too great to rebuild the country and accepted a loan from the International Monetary Fund (IMF). Questions remain. Why would Iraq be forced to rebuild its own country after a foreign invasion and where have all those billions earmarked for reconstruction gone?

To summarize—since the issue is far too complex address here—the Coalition Provisional Authority (CPA) has squandered billions of US tax-payer dollars intended to reconstruct destroyed Iraq and given in no-bid contracts to companies like Halliburton and Bechtel. The companies, under no obligation to account for spent funds, have been caught overcharging and wasting millions.

Meanwhile, $6 billion of Iraq’s money leftover from the United Nations Oil for Food Programme and about $10 billion from frozen assets and resumed oil exports were transferred into the Federal Reserve Bank in New York, to be spent by the CPA "in a transparent manner…for the benefit of the Iraqi people."

Of that $16 billion, $8.8 disappeared while Paul Bremer was still in charge and to this day remains unaccounted for. Other funds intended for reconstruction have been diverted to pay for security; contracted by the US government, Blackwater and other private "security" companies are in reality mercenaries-for-hire. Earning up to $5,000/day, they constitute the second-largest force in the so-called Coalition of the Willing.

Some of the story has emerged only because Senator Henry Waxman has been dogging the Bush administration with ongoing internal audits. Ed Harriman, in an article in July’s London Review of Books, follows the audit trail of missing, stolen, squandered and unaccounted for money that has left Iraq’s financial situation a shambles. Well-documented, Harriman provides ample evidence that as Iraq is expected to pay for its own reconstruction, the country is simultaneously being driven into impoverishment by the corruption of US officials and their US-installed Iraqi counterparts.

Following suit, corruption is also rampant in the American-backed Iraqi government. For example, on 5 February Iraq’s Public Integrity Commission filed criminal charges against a member of its parliament for allegedly embezzling millions of dollars intended to improve security of a key pipeline.

True to IMF policy, the $685 million loan came with a price; Iraq was to end oil subsidies and open its economy to private investment. In response, just after December elections the outgoing government increased fuel prices nine-fold. The move stunned Iraqis. Widespread demonstrations followed across the country; police fired upon a crowd of 3,000 protesters in Nassiryeh and killed four during riots in Kirkuk.

Iraqis are long used to both food and fuel subsidies and, one can argue, with 70-80 percent unemployment, are surviving in part because of them. As Iraqis come to realise how IMF policies further squeeze their lives this can only spell additional disaster. As The LA Times notes "Over the summer, gas was selling for about five cents a gallon. Now it’s about 65 cents, and at the end of the price increases, gasoline will cost about…$1 per gallon."

"This is classic," says Paul, of the Global Policy Institute. "The IMF always insists on the issue of ending subsidizes, even bread which is a more basic need. It almost always happens that riots ensue, governments even fall as a result of these policies."

The US administration, of course, has a different view. US Treasury Secretary John Snow, quoted in The Progressive, stated "This arrangement will underpin economic stability and help lay the foundation for an open and prosperous economy in Iraq."

Though Iraq’s Oil minister, Ibrahim Bahr al-Uloum, quit in protest, he was back within days and the seemingly immortal friend of the US, out-going Deputy Primer Minister, convicted embezzler and falsified-intelligence informant, Ahmad Chalabi is guaranteed a significant role.

"There has been a tremendous amount of maneuvering. Al-Uloum was not opposed to PSAs. He participated in the [US] State Department group that recommended them," Paul reveals. "Chalabi is asking large sums for himself to do deals with the oil companies."

Ironically, says Paul, "one of Iraq’s biggest crises is being brought about by shortages in the oil sector when it has the worlds second or third largest oil reserves."

"Iraq’s debt will [likely] be used to force the government to sign production-sharing agreements with the multi-nationals," Platform’s Greg Muttitt believes.

As Iraq’s standard of living continues to plunge, what remains for the Bush administration and its friends is sealing the deal. Yet, Iraqi’s themselves are loathe to this idea and the strength of their resistance speaks for itself. While the term resistance is used almost exclusively to describe the fighters, Iraqi resistance also includes non-violent protests, boycotts, and, of course, the successful strikes organized by Iraqi labor unions.

Many Iraqis I’ve spoken with are quick to point out Iraq’s long commitment to taking care of the social sector. Even under a brutal dictatorship, nationalized oil revenues built hospitals, universities and factories that were some of the best in the Middle East. This, prior to the 1980s when Iraq went to war with Iran and the US-led embargo that defined the 1990s. A return to those prior days is what many Iraqis are working toward.

As James Paul sums it up "Oil workers are opposed [to privatization] and are very powerful in these situations; they are very clear that oil should remain in national hands. They can’t just kill them all or fire them all. It’s widely known that these [multinational] companies controlled everything before. The main theme of their history is related to oil. You don’t have to be a wide-eyed radical to understand this; every Iraqi knows that oil is at the center of the war."


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