The Oil Industry is the Main Beneficiary of the Iraq War
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House of Representatives - January 11, 2007
Mr. Speaker, the American people have not received very much
information about a major issue in and around the Iraq war, and the oil
industry would like to keep it just that way. Fortunately,
investigative journalism is still being practiced, and I want to share
information uncovered by a reporter for AlterNet, in the United States,
and a major Sunday story this week in The Independent, a newspaper in
the United Kingdom. (full article below)
The number one Iraq story for all of 2006 on AlterNet, which is an
Internet-based news and opinion site, was a two-part series by a
reporter, Joshua Holland, entitled: "Bush's Petro-Cartel Almost Has
Iraq's Oil."
Last Sunday, The Independent carried stories with these headlines:
"Future of Iraq: The Spoils of War, How the West Will Make a Killing on
Iraqi Oil Riches." And "Blood and Oil: How the West Will Profit from
Iraq's Most Precious Commodity."
Members of Congress are limited in how much information we can enter
into the record at one time, so I will enter into the record The
Independent story. I will also encourage every American to seek out and
read the complete AlterNet story, which is available online.
These investigative reports paint a disturbing picture and raise
troubling questions about big oil's attempting to steal the oil wealth
and resources of the Iraqi people. From the beginning of the Iraq
invasion, more moderate voices, especially overseas, questioned whether
the ulterior motive behind toppling Saddam Hussein was a grab for Iraqi
oil. In this scenario, democracy is a by-product of oil production, not
the real reason for military action in Iraq.
Gaining access to the oil wealth of Iraq has had oil industries
salivating for years. Gaining control of that oil wealth would be a
prize beyond compare for the oil industry. Iraq has the third largest
oil reserves in the world, and there are many oil geologists who
believe that vast additional oil reserves are just waiting to be
discovered in Iraq's western desert. They call it the Holy Grail, and
some believe the untapped riches could propel Iraq from third to first
place in the world's oil reserves.
An estimated 115 billion barrels of oil reserves are under Iraq.
Today's price is $53 a barrel, and that is an 18-month low. The
American people are still suffering from the oil price shocks and high
prices at the pump, and the oil industry is booking record profits in
the billions of dollars every quarter, record profits in a world that
is addicted to oil.
In 1999, Vice President Cheney was running Halliburton, and he said in
a speech that another 50 million barrels of oil would be needed by the
end of the decade, and the key was the Middle East.
This administration and the British prime minister have repeatedly said
that the U.S. invasion was not about oil. But these investigative
reporters say a new law is quietly working its way through the Iraqi
government that would give unprecedented access, control and oil wealth
to Western oil companies. It would happen under what is known as a
production sharing agreement, a PSA.
Here is how The Independent put it: "PSAs allow a country to retain
legal ownership of its oil but gives a share of profits to
international companies that invest in infrastructure and operation of
the wells, pipelines and refineries."
The news account continues: "Their introduction would be a first for a
major Middle Eastern oil producer. Saudi Arabia and Iran, the world's
number one and two exporters, both tightly control their industries
through state-owned companies with no appreciable foreign
collaboration, as do most members of the Organization of Petroleum
Exporting Countries, OPEC."
The PSA's would give big oil in Iraq deals that would last for 30 to 40
years. These deals, the news reports point out, would force Iraq to
share its oil wealth with Western outsiders, not their own people. Up
to 70 percent of the profits would go to outside producers in the first
years, and the news media points out that these deals could be enforced
ahead of any social and economic reforms in Iraq and ahead of any
social programs. One person quoted called it "colonialism lite."
The President said it is not about oil. The prime minister said it is
not about oil. They said Iraqi oil was for Iraqi people. But the
legislation working its way through the Iraqi government is about
nothing but Western access to the oil and its incredible wealth. The
leaked drafts of the legislation show the West in a role with access
and control, including a provision in the leaked draft document that
would enable Western oil companies to transfer their wealth right out
of Iraq. They don't have to leave it in Iraq at all.
Quoting directly from the leaked draft, "A foreign person may
repatriate its exports in accordance with foreign exchange regulations
in force at the time." In fact, the language is so favorable to
companies that they would be able to take every bit out and sell the
rest to the world.
A vast amount of Iraq's wealth would be up for sale, by foreigners, to
foreigners. Quoting the leaked draft: "It may freely transfer shares
pertaining to any non-Iraqi partners."
The United States has been in Iraq for over 4 years already. How long
will we be there if western oil companies are given free rein to put a
vice grip on Iraq's oil? If western oil companies get a 30-year
agreement, we may call Iraq the 30-year war.
The President said Iraq was all about democracy. News reports now give
us a picture that say it might have been all about the oil.
Read the news reports and decide for yourself.
Blood and Oil: How the West Will Profit From Iraq's Most Precious
Commodity
By Jeffrey Ball
The Independent (UK) Jan. 7, 2007
(Entered into the Congressional Record by Congressman McDermott)
So was this what the Iraq war was fought for, after all? As the number
of US soldiers killed since the invasion rises past the 3,000 mark, and
President George Bush gambles on sending in up to 30,000 more troops,
The Independent on Sunday has learnt that the Iraqi government is about
to push through a law giving Western oil companies the right to exploit
the country's massive oil reserves.
And Iraq's oil reserves, the third largest in the world, with an
estimated 115 billion barrels waiting to be extracted, are a prize
worth having. As Vice-President Dick Cheney noted in 1999, when he was
still running Halliburton, an oil services company, the Middle East is
the key to preventing the world running out of oil.
Now, unnoticed by most amid the furore over civil war in Iraq and the
hanging of Saddam Hussein, the new oil law has quietly been going
through several drafts, and is now on the point of being presented to
the cabinet and then the parliament in Baghdad. Its provisions are a
radical departure from the norm for developing countries: under a
system known as "production-sharing agreements", or PSAs, oil majors
such as BP and Shell in Britain, and Exxon and Chevron in the US, would
be able to sign deals of up to 30 years to extract Iraq's oil.
PSAs allow a country to retain legal ownership of its oil, but gives a
share of profits to the international companies that invest in
infrastructure and operation of the wells, pipelines and refineries.
Their introduction would be a first for a major Middle Eastern oil
producer. Saudi Arabia and Iran, the world's number one and two oil
exporters, both tightly control their industries through state-owned
companies with no appreciable foreign collaboration, as do most members
of the Organization of Petroleum Exporting Countries, Opec.
Critics fear that given Iraq's weak bargaining position, it could get
locked in now to deals on bad terms for decades to come. "Iraq would
end up with the worst possible outcome," said Greg Muttitt of Platform,
a human rights and environmental group that monitors the oil industry.
He said the new legislation was drafted with the assistance of
BearingPoint, an American consultancy firm hired by the U.S.
government, which had a representative working in the American embassy
in Baghdad for several months.
"Three outside groups have had far more opportunity to scrutinise this
legislation than most Iraqis," said Mr. Muttitt. "The draft went to the
U.S. government and major oil companies in July, and to the
International Monetary Fund in September. Last month I met a group of
20 Iraqi MPs in Jordan, and I asked them how many had seen the
legislation. Only one had."
Britain and the United States have always hotly denied that the war was
fought for oil. On 18 March 2003, with the invasion imminent, Tony
Blair proposed the House of Commons motion to back the war. "The oil
revenues, which people falsely claim that we want to seize, should be
put in a trust fund for the Iraqi people administered through the UN,"
he said.
"The United Kingdom should seek a new Security Council Resolution that
would affirm ..... the use of all oil revenues for the benefit of the
Iraqi people."
That suggestion came to nothing. In May 2003, just after President Bush
declared major combat operations at an end, under a banner boasting
"Mission Accomplished", Britain co-sponsored a resolution in the
Security Council which gave the United States and UK control over
Iraq's oil revenues. Far from "all oil revenues" being used for the
Iraqi people, Resolution 1483 continued to make deductions from Iraq's
oil earnings to pay compensation for the invasion of Kuwait in 1990.
That exception aside, however, the often-stated aim of the United
States and Britain was that Iraq's oil money would be used to pay for
reconstruction. In July 2003, for example, Colin Powell, then Secretary
of State, insisted: "We have not taken one drop of Iraqi oil for U.S.
purposes, or for coalition purposes. Quite the contrary ..... It cost a
great deal of money to prosecute this war. But the oil of the Iraqi
people belongs to the Iraqi people; it is their wealth, it will be used
for their benefit. So we did not do it for oil."
Paul Wolfowitz, Deputy Defense Secretary at the time of the war and now
head of the World Bank, told Congress: "We're dealing with a country
that can really finance its own reconstruction, and relatively soon."
But this optimism has proved unjustified. Since the invasion, Iraqi oil
production has dropped off dramatically. The country is now producing
about two million barrels per day. That is down from a pre-war peak of
3.5 million barrels. Not only is Iraq's whole oil infrastructure
creaking under the effects of years of sanctions, insurgents have
constantly attacked pipelines, so that the only steady flow of exports
is through the Shia-dominated south of the country.
Worsening sectarian violence and gangsterism have driven most of the
educated elite out of the country for safety, depriving the oil
industry of the Iraqi experts and administrators it desperately needs.
And even the present stunted operation is rife with corruption and
smuggling. The Oil Ministry's inspector-general recently reported that
a tanker driver who paid $500 in bribes to police patrols to take oil
over the western or northern border would still make a profit on the
shipment of $8,400.
"In the present state, it would be crazy to pump in more money, just to
be stolen," said Greg Muttitt. "It's another reason not to bring in
$20bn of foreign money now."
Before the war, Mr. Bush endorsed claims that Iraq's oil would pay for
reconstruction. But the shortage of revenues afterwards has silenced
him on this point. More recently he has argued that oil should be used
as a means to unify the country, "so the people have faith in central
government", as he put it last summer.
But in a country more dependent than almost any other on oil--it
accounts for 70 per cent of the economy--control of the assets has
proved a recipe for endless wrangling. Most of the oil reserves in
areas controlled by the Kurds and Shias, heightening the fears of the
Sunnis that their loss of power with the fall of Saddam is about to be
compounded by economic deprivation.
The Kurds in particular have been eager to press ahead, and even signed
some small PSA deals on their own last year, setting off a struggle
with Baghdad. These issues now appear to have been resolved, however: a
revenue-sharing agreement based on population was reached some months
ago, and sources have told the IoS that regional oil companies will be
set up to handle the PSA deals envisaged by the new law.
The Independent on Sunday has obtained a copy of an early draft which
was circulated to oil companies in July. It is understood there have
been no significant changes made in the final draft. The terms outlined
to govern future PSAs are generous: according to the draft, they could
be fixed for at least 30 years. The revelation will raise Iraqi fears
that oil companies will be able to exploit its weak state by securing
favourable terms that cannot be changed in future.
Iraq's sovereign right to manage its own natural resources could also
be threatened by the provision in the draft that any disputes with a
foreign company must ultimately be settled by international, rather
than Iraqi, arbitration.
In the July draft obtained by The Independent on Sunday, legislators
recognise the controversy over this, annotating the relevant paragraph
with the note, "Some countries do not accept arbitration between a
commercial enterprise and themselves on the basis of sovereignty of the
state. "
It is not clear whether this clause has been retained in the final
draft.
Under the chapter entitled "Fiscal Regime", the draft spells out that
foreign companies have no restrictions on taking their profits out of
the country, and are not subject to any tax when doing this.
"A Foreign Person may repatriate its exports proceeds [in accordance
with the foreign exchange regulations in force at the time]." Shares in
oil projects can also be sold to other foreign companies: "It may
freely transfer shares pertaining to any non-Iraqi partners." The final
draft outlines general terms for production sharing agreements,
including a standard 12.5 per cent royalty tax for companies.
It is also understood that once companies have recouped their costs
from developing the oil field, they are allowed to keep 20 percent of
the profits, with the rest going to the government. According to
analysts and oil company executives, this is because Iraq is so
dangerous, but Dr Muhammad-Ali Zainy, a senior economist at the Centre
for Global Energy Studies, said: "Twenty percent of the profits in a
production sharing agreement, once all the costs have been recouped, is
a large amount." In more stable countries, 10 percent would be the
norm.
While the costs are being recovered, companies will be able to recoup
60 to 70 percent of revenue; 40 percent is more usual. David Horgan,
managing director of Petrel Resources, an Aim-listed oil company
focused on Iraq, said: "They are reasonable rates of return, and take
account of the bad security situation in Iraq. The government needs
people, technology and capital to develop its oil reserves. It has got
to come up with terms which are good enough to attract companies. The
major companies tend to be conservative."
Dr. Zainy, an Iraqi who has recently visited the country, said: "It's
very dangerous ..... although the security situation is far better in
the north." Even taking that into account, however, he believed that
"for a company to take 20 percent of the profits in a
production-sharing agreement once all the costs have been recouped is
large".
He pointed to the example of Total, which agreed terms with Saddam
Hussein before the second Iraq war to develop a huge field. Although
the contract was never signed, the French company would only have kept
10 percent of the profits once the company had recovered its costs.
And while the company was recovering its costs, it is understood it
agreed to take only 40 percent of the profits, the Iraqi government
receiving the rest.
Production-sharing agreements of more than 30 years are unusual, and
more commonly used for challenging regions like the Amazon where it can
take up to a decade to start production. Iraq, in contrast, is one of
the cheapest and easiest places in the world to drill for and produce
oil. Many fields have already been discovered, and are waiting to be
developed.
Analysts estimate that despite the size of Iraq's reserves--the third
largest in the world--only 2,300 wells have been drilled in total,
fewer than in the North Sea.
Confirmation of the generous terms--widely feared by international
nongovernment organisations and Iraqis alike--have prompted some to
draw parallels with the production-sharing agreements Russia signed in
the 1990s, when it was bankrupt and in chaos.
At the time Shell was able to sign very favourable terms to develop oil
and gas reserves off the coast of Sakhalin island in the far east of
Russia. But at the end of last year, after months of thinly veiled
threats from the environment regulator, the Anglo-Dutch company was
forced to give Russian state-owned gas giant Gazprom a share in the
project.
Although most other oil experts endorsed the view that PSAs would be
needed to kick-start exports from Iraq, Mr. Muttitt disagreed. "The
most commonly mentioned target has been for Iraq to increase production
to 6 million barrels a day by 2015 or so," he said. "Iraq has estimated
that it would need $20bn to $25bn of investment over the next five or
six years, roughly $4bn to $5bn a year. But even last year, according
to reports, the Oil Ministry had between $3bn and $4bn it couldn't
invest. The shortfall is around $lbn a year, and that could easily be
made up if the security situation improved.
"PSAs have a cost in sovereignty and future revenues. It is not true at
all that this is the only way to do it." Technical services agreements,
of the type common in countries which have a state-run oil corporation,
would be all that was necessary.
James Paul of Global Policy Forum, another advocacy group, said: "The
U.S. and the UK have been pressing hard on this. It's pretty clear that
this is one of their main goals in Iraq." The Iraqi authorities, he
said, were "a government under occupation, and it is highly influenced
by that. The U.S. has a lot of leverage ..... Iraq is in no condition
right now to go ahead and do this."
Mr. Paul added: "It is relatively easy to get the oil in Iraq. It is
nowhere near as complicated as the North Sea. There are super giant
fields that are completely mapped, [and] there is absolutely no
exploration cost and no risk. So the argument that these agreements are
needed to hedge risk is specious."
One point on which all agree, however, is that only small, maverick oil
companies are likely to risk any activity in Iraq in the foreseeable
future. "Production over the next year in Iraq is probably going to
fall rather than go up," said Kevin Norrish, an oil analyst from
Barclays. "The whole thing is held together by a shoestring; it's
desperate."
An oil industry executive agreed, saying: "All the majors will be in
Iraq, but they won't start work for years. Even Lukoil [of Russia], the
Chinese and Total [of France] are not in a rush to endanger themselves.
It's now very hard for U.S. and allied companies because of the
disastrous war."
Mr. Muttitt echoed warnings that un.fa.vour.able deals done now could
unravel a few years down the line, just when Iraq might become peaceful
enough for development of its oil resources to become attractive. The
seeds could be sown for a future struggle over natural resources which
has led to decades of suspicion of Western motives in countries such as
Iran.
Iraqi trade union leaders who met recently in Jordan suggested that the
legislation would cause uproar once its terms became known among
ordinary Iraqis.
"The Iraqi people refuse to allow the future of their oil to be decided
behind closed doors," their statement said. "The occupier seeks and
wishes to secure ..... energy resources at a time when the Iraqi people
are seeking to determine their own future, while still under conditions
of occupation."
The resentment implied in their words is ominous, and not only for oil
company executives in London or Houston. The perception that Iraq's
wealth is being carved up among foreigners can only add further fuel to
the flames of the insurgency, defeating the purpose of sending more
American troops to a country already described in a U.S. intelligence
report as a cause céle 2bre for terrorism.
America Protects its Fuel Supplies Contracts
Despite U.S. and British denials that oil was a war aim, American
troops were detailed to secure oil facilities as they fought their way
to Baghdad in 2003. And while former defence secretary Donald Rumsfeld
shrugged off the orgy of looting after the fall of Saddam's statue in
Baghdad, the Oil Ministry--alone of all the seats of power in the Iraqi
capital--was under American guard.
Halliburton, the firm that Dick Cheney used to run, was among
U.S.-based multinationals that won most of the reconstruction
deals--one of its workers is pictured, tackling an oil fire. British
firms won some contracts, mainly in security. But constant violence has
crippled rebuilding operations. Bechtel, another U.S. giant, has pulled
out, saying it could not make a profit on work in Iraq.
In Just 40 Pages, Iraq is Locked Into Sharing its Oil with Foriegn
Investors for the Next 30 Years
A 40-page document leaked to the `IoS' sets out the legal framework for
the Iraqi government to sign production-sharing agreement contracts
with foreign companies to develop its vast oil reserves.
The paper lays the groundwork for profit-sharing partnerships between
the Iraqi government and international oil companies. It also lays out
the basis for co-operation between Iraq's federal government and its
regional authorities to develop oil fields.
The document adds that oil companies will enjoy contracts to extract
Iraqi oil for up to 30 years, and stresses that Iraq needs foreign
investment for the "quick and substantial funding of reconstruction and
modernisation projects".
It concludes that the proposed hydrocarbon law is of "great importance
to the whole nation as well as to all investors in the sector" and that
the proceeds from foreign investment in Iraq's oilfields would, in the
long term, decrease dependence on oil and gas revenues.
The Role of Oil in Iraq's Fortunes
Iraq has 115 billion barrels of known oil reserves--10 per cent of the
world total. There are 71 discovered oilfields, of which only 24 have
been developed. Oil accounts for 70 per cent of Iraq's GDP and 95 per
cent of government revenue. Iraq's oil would be recovered under a
production-sharing agreement (PSA) with the private sector. These are
used in only 12 per cent of world oil reserves and apply in none of the
other major Middle Eastern oil-producing countries. In some countries
such as Russia, where they were signed at a time of political upheaval,
politicians are now regretting them.
The $50bn Bonanza For U.S. Companies Piecing a Broken Iraq Together
The task of rebuilding a shattered Iraq has gone mainly to U.S.
companies.
As well as contractors to restore the infrastructure, such as its
water, electricity and gas networks, a huge number of companies have
found lucrative work supporting the ongoing coalition military presence
in the country. Other companies have won contracts to restore Iraq's
media; its schools and hospitals; its financial services industry; and,
of course, its oil industry.
In May 2003, the Coalition Provisional Authority (CPA), part of the
U.S. Department of Defence, created the Project Management Office in
Baghdad to oversee Iraq's reconstruction.
In June 2004 the CPA was dissolved and the Iraqi interim government
took power. But the U.S. maintained its grip on allocating contracts to
private companies. The management of reconstruction projects was
transferred to the Iraq Reconstruction and Management Office, a
division of the U.S. Department of State, and the Project and
Contracting Office, in the Department of Defence.
The largest beneficiary of reconstruction work in Iraq has been KBR
(Kellogg, Brown & Root), a division of U.S. giant Halliburton, which to
date has secured contracts in Iraq worth $13bn ( u7bn), including an
uncontested $7bn contract to rebuild Iraq's oil infrastructure. Other
companies benefiting from Iraq contracts include Bechtel, the giant
U.S. conglomerate, BearingPoint, the consultant group that advised on
the drawing up of Iraq's new oil legislation, and General Electric.
According to the U.S.-based Centre for Public Integrity, 150-plus U.S.
companies have won contracts in Iraq worth over $50bn.
30,000--Number of Kellogg, Brown and Root employees in Iraq.
36--The number of interrogators employed by Caci, a U.S. company, that
have worked in the Abu Ghraib prison since August 2003.
$12.1bn--UN's estimate of the cost of rebuilding Iraq's electricity
network.