Oil, Neo-Liberalism, and Sectarianism




F

or almost four years, Western
oil companies have waited to get their hands on Iraq’s proven
reserves of 115 billion barrels. Iraq has the third most reserves
in the world behind Canada and Saudi Arabia, but this just scratches
the sand. After almost 30 years of war and sanctions, large parts
of Iraq remain little explored and it may have more than 200 billion
barrels of undiscovered oil under its desert. 


Despite its promise, Iraq has been unable to develop new production
under the U.S. occupation and has seen its exports plummet from
2.1 million barrels per day before the war to 1.2 million a day
in January 2007. The Bush administration spent billions in U.S.
and Iraqi money to boost oil output, but those projects amounted
to more failures of the reconstruction. Rewriting Iraq’s oil
laws is being touted as the new solution and the Iraqi government
has been wrangling over petroleum legislation for almost a year.
Until issues over regional control and revenue sharing are ironed
out, however, the majors, as the big Western oil companies are known,
are stuck on the sidelines. 


In late February Iraq’s cabinet approved a draft law on oil
and sent it to the National Assembly, which is expected to finalize
it by May. Its exact provisions are unclear, but the drafting process
lends insight into who will benefit. The U.S. government, the IMF,
and major oil companies have had access to the legislation as far
back as July 2006. Also involved is BearingPoint, a corporation
that has received $240 million in U.S. government funds to help
develop “a competitive private sector” in Iraq and which
the White House retained to help write the legislation. 


As of early March, few Iraqi parliamentarians had seen the draft
law and it still hadn’t been released publicly. Nonetheless,
some intrepid Iraqi bloggers got their hands on a version dated
January 15, 2007 and posted it to the web. According to an Iraqi
who was one of “three independent Iraqi oil technocrats”
tasked with researching and writing the law, the cabinet substantially
revised the previous draft. The document that comes out of the Assembly
(also known as the Council of Representatives) will likely be changed
further, but a few salient facts stand out. 


The battle over oil is a microcosm of the Iraq War, involving the
White House and IMF neoliberal agenda, sectarian Iraqi parties’
desires to form their own oil-rich states and anti-privatization
organizing by Iraqi oil workers. Also in the mix are resistance
groups that have crippled Iraq’s oil sector and a variety of
criminal networks that are siphoning off the nation’s oil wealth.
While attention has been paid to the economic context of a new oil
law, little has been said of the political squabbling and how it’s
intertwined with the sectarian battles that threaten Iraq’s
future. 


The overriding goal for the Bush administration is to privatize
Iraq’s oil reserves and industry for the benefit of Western
oil companies. The IMF has played a significant, but little-noticed
role in this matter. In December 2005 it reached an agreement with
Iraq to renegotiate some $120 billion in Hussein-era debt. As part
of a deal to write off most of the debt down the road (why Iraqis
had to pay any of it was never asked), the IMF demanded that Iraq
cut subsidies on food and fuel and draft a new petroleum law. Typical
of the IMF strategy, public services are slashed while public wealth
is privatized. The raising of fuel prices provoked intense riots
throughout Iraq and has meant further hardship for many Iraqis who
need various refined fuels for transport, cooking, heat, and electricity,
but it has done little to end smuggling and black market profiteering,
which was the stated intent. According to the Bretton Woods Project,
an independent watchdog, the Standby Arrangement Iraq signed with
the IMF “clearly states that the World Bank is the lead institution
for sectoral strategies including the petroleum sector.” 







Some analysts estimate that two-thirds of Iraq’s oil would
be prey to privatization, but one clause may allow almost every
drop of Iraq’s oil to be controlled by transnationals. Article
8 of the draft demands the “speedy and efficient development
of the fields discovered but partially or entirely not yet developed”
and allows “collaboration with reputable oil companies.” 


Depending upon one’s agenda, any field can be considered “partially
developed.” This was the view of exiled Iraqis organized under
the U.S. State Department’s “Future of Iraq Project.”
Designed to create the blueprint for a new Iraq, this body included
participation from the CIA, National Security Council, Defense Department,
Joint Chiefs of Staff, and Dick Cheney’s office. Its “Oil
and Energy Working Group” issued a report in April 2003 that
called for a new oil law upholding the tenets of privatization,
such as Production Sharing Agreements, ending the state’s monopoly
over production and welcoming international oil companies. The report
also put forth “bold conjectures” on Iraq’s oil potential,
arguing that it was woefully inadequate and could be increased ninefold
up to 21.6 million barrels a day—twice the output of Saudi
Arabia. This would lead to a conclusion that none of Iraq’s
oilfields are fully developed, allowing oil companies into any area. 


Privatizing Iraq’s oil would meet another U.S. goal. It wants
a source of non-OPEC oil to come to international markets, breaking
the cartel’s power over pricing. But the Bush administration
wants Iraq’s federal government to control the oil so the majors
can get easy and undisputed access. A breakup of Iraq would lead
to legal disputes, an intensified civil war, and possibly a regional
war that could prevent access to oil for years. 


The

Financial Times

describes one nightmare scenario: “A
separate Shia entity could encourage other Shia minorities to demand
their own autonomy and firmly put southern Iraq under Iranian influence.
A Kurdish entity, meanwhile, could provoke intervention from Turkey,
afraid of the impact on its own Kurdish minority. A Sunni region
may well be controlled by extremist Islamists, inviting intervention
from Sunni Arab states.” 


Ironically then, the one thing holding Iraq together may be the
White House’s greed for black gold. This hasn’t stopped
the two main Kurdish parties from trying to form an autonomous region
in the north and Shia parties doing the same in the south. Both
these regions contain the vast majority of Iraq’s known reserves,
which these “statelets” would need to survive. The two
Kurdish parties—the Kurdistan Democratic Party (KDP) and the
Patriotic Union of Kurdistan (PUK)—and the main Shia party,
the Supreme Council for the Islamic Revolution in Iraq (SCIRI),
are nominally allied with the United States, but they are pursuing
their own agendas in pushing for autonomous regions. 


Combine all these factors and the result is an oil law that is a
mess. Various provisions mandate the privatization of Iraq’s
oil reserves and industry, which would benefit the majors, but which
government entity controls the fields, revenues, production, and
contracting is already in dispute. The draft tries to walk a line
between maintaining federal control and granting enormous powers
to the regions. 


U.S. and Iraqi officials have tried to put an upbeat spin on the
draft. Prime Minister Nouri al-Maliki said it will provide a “solid
base for unity of all Iraqis,” while the White House claimed
it “will be a model for cooperation in the country.” It’s
more likely that the exact opposite will happen.  







Fueling Sectarianism 



T

he legislation is both a
product of the sectarianism that the United States fomented in Iraq
and an ongoing cause of it. The oil law is based on the constitution,
which hardened the sectarian lines by allowing for provinces to
form “autonomous regions.” The draft was delayed for months
because the Kurdistan Regional Government (KRG) demanded the power
to negotiate its own contracts. The KRG is trying to form its own
state in three northern provinces and annex the nearby oil-rich
city of Kirkuk to it. 


Kirkuk, which straddles 10 billion barrels of proven reserves, is
where the insurgency, sectarian wars, and oil conflict all coincide.
Production in the area has been crippled as insurgents have bombed
pipelines, pumping stations, and refineries. Kirkuk residents are
scheduled to vote in December 2007 on whether to join the Kurdish
region. Over the last four years Kurdish militias have been evicting
Arabs who moved there under Saddam Hussein’s forced Arabization
policy while moving tens of thousands of displaced Kurds into the
city. It’s believed that the city now has a Kurdish majority
that will vote to join the KRG. An oil-rich Kirkuk would give the
Kurdish parties an economic base to form their own state. But Sunni
Arab resistance fighters are active in the region and the Shia-based
Mahdi Army has also moved in. Along with a mix of Kurds, Arabs,
and Turkmen in the city, Kirkuk is ripe for an explosion. 


A Kurdish state could also ignite a regional war. Turkey fears it
would spark a renewed separatist movement among its own Kurds, which
the military has repressed brutally for decades. The oil legislation
has only added to the tensions. Days after the draft’s passage
was announced, Turkish Prime Minister Recep Tayyip Erdoðan
warned that claims by Kurds “to rights over the oil rich northern
Iraqi city of Kirkuk…would pave the way for more conflict in
Iraq.” 


David Phillips, author of

Losing Iraq: Inside the Postwar Reconstruction
Fiasco

, observes that, “If the United States had to choose
between Turkey and the Kurds, it would side with Turkey every time.”
Short of a full-scale invasion, however, neither one is in a position
to stop the Kurds’ methodical march to independence. The Kurds
are not intending to proclaim an independent state any time soon.
Their goal is to assume the powers and economic resources necessary
to achieve complete autonomy. 



Kurdistan Rising 



W

hen news broke of the draft’s
approval, the Kurds made it clear that they would not cede one sliver
of control over oil in the region. The KRG posted a long statement
on its website on February 26, 2007 from “Dr. Ashti Hawrami,
the KRG Minister for Natural Resources,” explaining the agreement.
He said: “The Kurdistan Region will voluntarily share some
of its Constitutional powers to manage petroleum exploration and
development in Kurdistan with the Federal Government…. The
Kurdistan Regional Government will permit an independent panel of
experts to review the KRG’s petroleum contracts against certain
agreed commercial criteria. The KRG will also voluntarily pool all
of the petroleum revenues to which it is entitled with all the other
regions and governorates.” 


The talk of “voluntarily” and “permit” shows
that the KRG intends to exert complete control over exploration,
development, contracting, and revenues. This is a legacy of the
constitutional debacle in 2005, which allowed for the formation
of regions and enshrined ambiguous wording over federal and regional
powers in general and natural resources in specific. Under the constitution,
“Oil and gas are owned by all the people of Iraq in all the
regions and governorates.” According to a paper written by
Tariq Shafiq, the Iraqi oil technocrat who helped write the draft,
the KRG position is “based on a radical interpretation”
of the constitution, “which categorizes oil and gas in Kurdistan
as the property of the people of Kurdistan and not as an undivided
asset of the whole Iraqi nation.” 


The KRG has already signed a handful of deals with small oil firms
willing to enter the volatile region. These deals are the notorious
Production Sharing Agreements (PSAs) that involve large profit margins
for the companies involved and the KRG is even more generous. Here,
then, is an example of how sectarianism and neo-liberalism coincide.
The KRG is ostensibly trying to gain control of oil reserves to
fund an independent state, but it’s giving away the store to
oil companies. Oil deals are calculated using an “internal
rate of return” with more than 12 percent considered to be
a profitable venture. The KRG, according to Tariq Shafiq, signed
contracts with “windfall profits well above the norm”
that involve return rates of 60-100 percent. (These contracts have
been declared invalid by Baghdad, but they will probably be reworked
to be more in line with the still profitable industry standards.)
Such exorbitant profits call into question whether the Kurds would
ever see any money, but then again the KRG’s rule has been
marked by rampant corruption, cronyism, and economic mismanagement. 








The situation is little better in the south, which contains 60 percent
of Iraq’s known reserves. Last October Shia parties led by
SCIRI forced through a bill that set the procedures for autonomous
regions as early as 2008. Yet again, this added to the sectarian
divisions. The

Washington Post

noted at the time, “Sunnis
vehemently oppose such a division, which would leave them with an
area in central Iraq that lacks the vast oil wealth of the north
and south.” 


Resistance has been fierce, however. The overriding reason Western
oil companies have not entered Iraq is because of the insurgency,
both in terms of direct attacks on oil workers and infrastructure
and the resulting power vacuum that has been filled by criminal
networks engaged in plundering Iraq’s oil. Issam Al Chalabi,
who served as Iraq’s oil minister from 1987 to 1990, told UPI
that no exploration could take place because “Seismic crews
simply cannot go outside. They will be under constant attack, not
only by saboteurs, but by militias, by mafias, by gangsters, by
thieves.” 


The resistance has also exacted a heavy toll on oil workers, with
289 of them dying in attacks last year. There were nearly 100 attacks
on the oil infrastructure recorded last year. Since almost the beginning
of the occupation, resistance groups have knocked more than 90 percent
of production in northern fields offline through repeated bombings
of pipelines and pumping stations. The number of attacks may be
far higher. Iraq’s oil minister admitted in January that during
one recent six-day period “oil pipelines were the target of
thirty attacks and attempts at sabotage.” 


The oil workers are caught between a thuggish government, a brutal
occupation, and a resistance that borders on nihilistic, but they
are still mobilizing against the law. According to the

Independent

(UK), a statement released by oil workers meeting in Jordan vowed,
“The Iraqi people refuse to allow the future of their oil to
be decided behind closed doors. 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.” 


Hassan Jum’ah Awwad Al-Asadi, head of Iraq’s Federation
of Oil Unions, told

Time Magazine

that his 23,000member union
opposes the draft. “We want a new, different law, which will
be in the interests of Iraqis. If there is no solution we can stop
production, stop exports.” Asadi was also reported to have
told union members, “We strongly warn all the foreign companies
and foreign capital in the form of American companies against coming
into our lands under the guise of production-sharing agreements.” 



Profit Boom 



I

n January the

Independent

reported that it had “obtained a copy of an early draft,
which was circulated to oil companies in July 2006.” The proposed
law would be a bonanza for the majors. According to the draft, “While
the costs are being recovered, companies will be able to recoup
60 to 70 percent of revenue; 40 percent is more usual.” The
majors could thus receive nearly twice as much revenue during the
cost-recovery phase as normal and in general they use all sorts
of accounting chicanery to deny revenues to the host country. Iraq’s
draft law also allows for a 20 percent profit rate once costs have
been recouped, as opposed to a 10 percent norm for PSAs. 


Of Iraq’s 80 known oilfields, only 17, representing 40 billion
barrels, are pumping oil. Whether the majors get access to these
fields depends on how the Iraqi government determines whether they
are “partially developed.” Nonetheless, the majors would
be the big winners of the remaining 70 billion barrels in known
reserves plus all the undiscovered fields. They would gain control
through production sharing agreements, or PSAs. Many analysts are
critical of PSAs, which grant generous terms to oil companies to
develop new fields. One analyst with the International Energy Agency
estimated only 12 percent of the world’s reserves are subject
to such agreements. 








Greg
Muttitt, author of

Crude Designs: The Rip-Off of Iraq’s
Oil Wealth

, notes that while PSAs are “quite common in
countries with small oil reserves and/or high extraction costs…PSAs
are not found in any other country comparable to Iraq.” Countries
with enormous oil reserves, such as Saudi Arabia, Kuwait, and Mexico,
do not allow PSAs. In recent years, some of the few large oil producers
with PSAs, like Russia and Venezuela, have moved away from them
because of the unfavorable terms. The trend has been toward re-nationalization
of oil, which the majors are fighting. 




The Prize 



G

etting access to Iraq’s
oil would be the prize of the century for the majors—at least
10 percent of global reserves and perhaps one-quarter if predictions
of undiscovered oil bear out. Before the U.S. invasion, some oil
companies were licking their chops. In February 2003 the

Financial
Times

reported that the “unusually blunt” chair of
ConocoPhillips said about Iraq, “We know where the best reserves
are [and] we covet the opportunity to get those some day.” 


The amount of profit depends on the specifics of Iraq’s oil
law. Muttitt offered some guidance in

Crude Designs

. Using
“conservative assumptions,” he estimated that Iraq could
lose up to $194 billion over 30 years from just “12 of Iraq’s
oilfields that have been listed as priorities for investment under
production sharing agreements.” These numbers were based on
oil at $40 a barrel. With a barrel of oil averaging more than $60
in the past year, this could mean more than $300 billion in profits
for the majors from the 12 Iraqi oilfields alone. 


In mid-February a new version of the Iraq oil law was published
by Iraqi bloggers. A complicated series of articles, it will open
the door to massive privatization. In line with the Bush administration’s
agenda, the draft appears to leave national control over oil while
giving regional entities all sorts of powers over the central oil
authorities. The new law would strip the federal government of power
because much of the decision-making and oil revenue would devolve
to regional and provincial entities. 


Regional and provincial entities are given all sorts of rights and
control of “discovered but undeveloped fields,” which
comprise the majority of Iraq’s proven reserves. Regions would
also be able to negotiate their own contracts and then have votes
on the body that can reject those contracts, thus giving them greater
leeway to move away from central control. 


The law also severely limits the ability of the Iraqi National Oil
Company (INOC)—the state-owned oil company—to engage in
the development of anything other than already-producing fields.
The draft law mandates that INOC set up subsidiaries that are given
guaranteed revenue and profit streams as well as seats on its board.
This appears to be a maneuver to have a national oil company in
place, but then hollow it out. 


In a series of clauses, the draft opens the door to representatives
of international oil companies taking part in the “negotiation
and rights teams” as well as assessing the contracts once written.
Many articles demand “competition.” One clause states
that Iraq “shall aim at achieving variety among oil companies
and operators” and consider “using consortia of selected
companies, particularly in large fields.” These and other clauses
make clear that there is no way to follow the new oil law other
than by allowing in large oil companies. The oil companies are also
allowed to “transfer any net profits from petroleum operations
to outside Iraq.”  


The law is even written with language demanding haste in developing
regional fields, as if there was a sense that the oil companies
must be allowed to get access to oil before Iraq oil implodes. Another
article mandates that in the case of disputes between Iraq and foreign
oil companies, Iraq subject itself to arbitration. According to
Platform, a nonprofit that is critical of privatizing Iraq’s
oil, this would result in “a secretive and remote international
arbitration tribunal—overriding domestic law.”  


Neither are there any guarantees for state participation. The Iraqi
National Oil Company—a state-owned oil company—is only
allowed to participate in development of “discovered but undeveloped
fields,” and it must compete against other companies for the
rights to exploration and production in “new fields.” 







Long-Time Plotting 



T

he Bush administration’s
thirst for Iraq’s oil goes back a long way. In 2004 former
Treasury Secretary Paul O’Neill revealed to “60 Minutes”
that barely ten days after Bush was inaugurated, invading and occupying
Iraq was the top item in White House and National Security Council
meetings. “From the very first instance, it was about Iraq.
It was about what we can do to change this regime,” O’Neill
claimed. 


Weeks later, in February 2001, Dick Cheney’s Energy Task Force
began meeting with Exxon Mobil, BP, Conoco, Shell, and other majors.
The task force was supposedly drawing up a national energy policy,
but at the time, Cheney was poring over a map of “Iraqi oilfields,
pipelines, refineries, and terminals” and charts detailing
“foreign suitors” for Iraq’s abundant oil and gas
reserves. It’s not known what was being discussed between the
task force and the oil companies, but it probably wasn’t solar
power. 


Little came of this until September 11. Then the Bush administration
swung into action almost overnight. On September 13 Donald Rumsfeld
ordered Army planners “to sketch a plan to seize and hold Iraq’s
southern oilfields,” according to Michael Gordon and General
Bernard E. Trainor, authors of

Cobra II: The Inside Story of
the Invasion and Occupation of Iraq



In April 2003 the Future of Iraq Project recommended privatizing
Iraq’s national oil industry. It also suggested issuing “vouchers
to all Iraqi citizens” and proposed PSAs as the catch-all solution
to Iraq’s limited oil production, social ills, and revenue
shortfalls. 


Gaining access to oil has been slowed by the lack of a legal framework.
Once a permanent Iraqi government was seated in June 2006, a new
oil law was the top priority for the White House. Bush visited Iraq
days after the new government took power. According to a June 15
report from

Platt’s Oilgram News

, “Bush said energy
in Iraq was a central topic of discussions during his meeting earlier
this week with Iraqi Prime Minister Nuri Kamal al-Maliki.”
Bush also announced that he was dispatching Secretary of Energy
Samuel Bodman to Iraq. Bodman said “he would bring technical
experts from the Department of Energy to help the Iraqis develop”
a new hydrocarbon law. 


The following month Bodman delivered a message to Iraq’s oil
minister, “from senior U.S. oil executives.” The newsletter

Inside Energy

reported the message was “We are interested….
There are a lot of reserves there, but we cannot think about investing.”
Bodman added that the executives told him they wanted “a more
secure environment and the establishment of a hydrocarbon law. Both
are required. Both are necessary.” 


According to Muttitt, the Iraqi oil legislation has been made available
to outside groups, but not to the Iraqi public. Muttitt told the

Independent

, “The draft went to the U.S. government
and major oil companies in July and to the International Monetary
Fund in September. Last month [December] I met a group of 20 Iraqi
MPs in Jordan and I asked them how many had seen the legislation.
Only one had.” 


The struggle over Iraq’s oil is about who it is for. For the
Bush administration, the oil would serve as a profit stream for
Western capital. It appears that many in the Iraqi government, who
stay in power only with U.S. force behind them, agree as well. But
like the grand plans to privatize Iraq’s economy four years
ago, it may remain a pipedream. The armed resistance has shown that
chaos is the only constant and it will probably be a long time before
anyone gets their hands on Iraq’s oil.





A.K. Gupta is an editor at the

Indypendent

newspaper in
New York.