Iraq: Is It About Oil?


Institute for Health and Social Justice


Those who question the stated motives of the US administration for threatening war against Iraq – to strike at dictatorship, or to eradicate its alleged weapons of mass destruction – have good reason for skepticism. I assume that readers hardly need be reminded of the US’s past support for Hussein, including when he used poison gas against Iranians and Kurds, support that vanished exactly when he invaded an oil producing regime friendly to the US; its support for current dictatorships throughout the region; its sabotaging of the UN inspection program, by using it as a cover for spying and by a renewal of bombing that forced inspectors from the country, and current efforts to obstruct their return; or its disinterest in multilateral treaties for controlling the production and spread of chemical and biological weapons.


So what are the real motives? Many critics of the administration including some Congressional Democrats suspect an attempt to divert attention from domestic problems. Even some supporters. A New York Post editorialist puts it as follows: “Polls show that only one issue works in Bush’s favor: terrorism. On the environmental [sic], global warming, prescription drug plans for the elderly, the right of HMO patients to sue in court, campaign-finance reform, corporate oversight and every other major public question, Americans back the approaches preferred by the Democrats…The president always has the power to control the subject of the national debate. As Bush uses this power to focus on the dangers Saddam Hussein poses for the U.S. and for Israel, what other issues will really matter?” Not surprising then that Iraq has been the focus of Bush’s speeches at campaign stops for Republican candidates in the upcoming midterm elections.


One might suspect these elections to explain why the Bush administration is in such a hurry, but even if there is no war by Election Day the urgency will probably not subside. According to a recent New York Times news analysis, it’s important to US planners that a war be undertaken this winter so “cooler temperatures make it easier for American troops to operate in bulky chemical gear and the longer nights enable them to take advantage of their night vision equipment.”


But these are short-term motives. It’s hardly news that there is another, longstanding motive having something to do with oil. Exactly what this is, though, is a frequent source of confusion. For instance prior to the first Gulf War not only the elder Bush’s administration but also much of the peace movement asserted that the US concern was in part to keep oil prices low and, as SANE/FREEZE put it, to ensure “the free flow of oil to the US”; one group blamed automakers’ resistance to fuel efficiency for the crisis. The common assumption here is that the oil interest is public, even if of debatable merit.


In fact the oil interest is private. It’s also multi-faceted, not amounting simply to maximizing oil companies’ profits. The larger issue is maximizing US control, which has a variety of benefits including non-oil profits and geopolitical advantages.



One benefit is the oil producers’ role in sending surplus revenues to the US via bank deposits, purchases of US securities, and other investments. In the period 1970-1982, about 30 percent of the Gulf producers’ $750 billion in oil revenues went toward foreign investment, mostly in notes of various Western banks, corporations, and governments. The huge surpluses earned by OPEC countries during the 1970s ($173 billion between 1974 and 1977) were mostly placed in unregulated offshore branches of Chase Manhattan and other banks. Prior to the first Gulf War, Kuwait had vast Western investments including US Treasury bonds, portfolios managed by Citibank, gold reserves in the Federal Reserve and Bank of England, and a 10% stake in BP – which largely explains why it was okay for Iraq to invade Iran but not Kuwait. Thomas Ferguson wrote at the time that “petrodollar surpluses of the leading Middle East states no longer represent the Amazon of world capitalism…[but] the Gulf certainly qualifies as a world economy’s Mississippi, a father of financial waters that still flows majestically into New York and London (where the largest US banks…have branches).”


Arms sales are another means by which petrodollars are recycled back to the US, which boosts the domestic arms industry while engendering strategic cooperation and building military capability for enforcement of US hegemony. The Shah of Iran was an especially voracious customer; by the late 1970s Iran had become the largest foreign purchaser of US arms, spending $17 billion over the decade. With this assistance the Shah performed many useful tasks, such as confronting Iraq and the Soviet Union, helping put down an insurgency in Oman, and maintaining a secret police (SAVAK, created by the CIA) for quelling internal dissent. Saudi Arabia is an important patron, as in 1981 when it purchased AWACS surveillance planes. These were part of an integrated region-wide air defense system built to US specifications for hosting the US Rapid Deployment force (later the Central Command headed by Norman Schwarzkopf). Military analyst Anthony Cordesman noted that $8.5 billion sale agreement would “help strengthen US ability to deploy forces from the eastern Mediterranean and project them as far east as Pakistan…No conceivable buildup of US strategic mobility…could act as a substitute for such facilities in Saudi Arabia.” In other words, Saudi oil money funded US strategic objectives. The first Gulf War furthered these objectives considerably: not only did the US move closer to long-desired Saudi land bases, but by five months after the war the US had sold massive quantities of arms throughout the region, including Turkey, Morocco, Egypt, Oman, and the United Arab Emirates.


As for the oil companies, a 1947 planning document entitled “United States Petroleum Policy” put it as follows: the US should seek the “removal or modification of existent barriers to the expansion of American foreign oil operations” and to “…promote…the entry of additional American firms into all phases of foreign oil operations.” Until the mid-1950s the main “barrier” was Britain, for whom oil was a prime reward of its colonization of much of the region. But with the postwar decline of the British Empire and ascendance of US military and economic power, the US gained control of the lion’s share of Middle East oil. In 1948 the all-US consortium Aramco (Mobil, Texaco, and what became Exxon and Chevron) with exclusive oil rights in Saudi Arabia was formed, after the US government helped Mobil and Exxon back out of an earlier agreement with British Petroleum (BP) and Shell. In 1950 the companies were allowed to meet King Ibn Saud’s demands for a fifty percent share by paying it in lieu of US taxes. This arrangement undercut Britain in Iran, where the government of Mohammed Mossadegh demanded the same fifty percent. Mossadegh was later overthrown in a CIA-backed coup, after which the US negotiated a 40% stake in Iranian oil for US companies, breaking what had been a monopoly for BP. Meanwhile, the US and Britain continued to share concessions in Iraq, Kuwait, and elsewhere.



US oil power isn’t what it once was. By 1981 world crude oil was 60% owned by producing countries, the percentage owned by the big US oil companies in 1970. OPEC has thus also gained an increasing ability to influence pricing and production, at the companies’ loss. But this development has not turned out to be very threatening to US interests. To begin with, nominally nationalized oil industries frequently have “buyback” arrangements whereby companies have the right to buy a large percentage of oil at a favorable price. Aramco for example is now Saudi-owned but US companies buy over half of its output. The companies also maintain leverage because of their non-OPEC supplies, e.g. in Alaska, Russia, and the North Sea, and their domination of refining, marketing, and distributing (“downstream”) operations. And they are increasingly concentrated, the dominant conglomerates now consisting of Exxon-Mobil, Chevron-Texaco, Royal Dutch/Shell, TotalFina Elf, and BP-Amoco-Arco. In any event the US is not nowadays averse to greater OPEC power so long as many OPEC members, especially Saudi Arabia, properly spend their surpluses and submit to US authority on military and other affairs.


As against the multi-faceted US oil interest, there is the enemy: nationalism, i.e. tendencies of leaders or populaces to want the benefits from their resources for themselves. For some time the Arab nationalists were led by Egyptian President Nasser, long an inspiration in the Arab world for his defiance of Western neocolonialism. Libya first became a US enemy in 1969. Western oil companies in Libya had been supplying Europe with oil which was valuable for its proximity and low-sulfur content. The army officers that Moammar Qaddafi led in an overthrow of the British-installed King Idris wanted more for the oil, and their quick success led other producers to raise prices a few months later. Persistent Libyan militance was a prime factor leading to OPEC countries’ winning participation shares for the first time, in 1972.


Iraq became an enemy in 1958, when nationalist military officers overthrew a feudal regime, also British-installed. Partly in response to this, the US sent the Marines to Lebanon, though Eisenhower administration policy as reported by the New York Times was that the “intervention will not be extended to Iraq as long as the revolutionary government in Iraq respects Western oil interests,” i.e. the US, British, and French ownership of Iraqi oil. The oil was not nationalized, and the Marines withdrew. But the Iraqis had long been bitter over a 1928 arrangement whereby Iraq had no participation in its oil except royalties. They also resented what they considered deliberate underproduction by the oil companies for many years (an assessment backed up by a 1947 Federal Trade Commission report). After BP and Exxon reduced prices in 1960, angering the producing countries, the Iraqis convened the founding meeting of OPEC. Iraq’s oil was finally nationalized in 1972, with no buyback deals for US or British companies (though there was for France). The move was immensely popular: vice president Saddam Hussein summarized it as “our wealth returned to us.”


So US policy toward Iraq during this period was hostile. In 1972 the CIA at the behest of the Shah sent arms to the Iraqi Kurds, who were fighting the government for autonomy. But after the outbreak of the Iran-Iraq war in September 1980, Washington saw an opportunity to pull Iraq into the US orbit while containing revolutionary Iran. Favorable trading and diplomatic relations were resumed, and continued after the war ended; in 1989 President Bush signed a national security directive for continuing détente with Iraq. But in a speech before the Arab Cooperation Council in February 1990, Saddam Hussein criticized the US presence in the Gulf, and urged withdrawing oil money from the West to reinvest in the Soviet Union and Eastern Europe. This flash of the old Iraqi independence worried US policymakers, and led to the cancellation of a subsidized grain sale. The State Department under the Reagan administration had already debated a high-level recommendation to switch to an adversarial strategy against Iraq; meanwhile, the Pentagon had been planning for what it called “mid-intensity conflict,” with Iraq as a paradigm foe. So while US-Iraq détente formally continued up to the eve of Iraq’s invasion of Kuwait, it was precarious.


With the consummation of the Gulf War, the US gained a measure of control over the Iraqi oil industry. As much as thirty percent of Iraq’s oil revenues under the “food-for-oil” regime has gone to Kuwait, hence indirectly to Western corporations. From its position on the UN Security Council’s sanctions committee, the US has had considerable power to determine which reconstruction contracts are approved, a power it has used in part to favor US companies: for example Halliburton, formerly headed by Vice President Cheney, and its subsidiary Dresser-Rand. Because they do not want to be seen doing business with Iraq, these companies generally hide behind European subsidiaries and joint ventures. But as the Financial Times of London reports, “by temporarily dropping their guise as European companies, they have managed to reverse [US decisions to block a contract] by going directly to US officials…Few non-US companies have been able to exercise similar influence.”


But the overall effect of sanctions, along with continued bombing, is punitive. US policy on sanctions is apparently calculated to prevent Iraq from rebuilding full oil production capacity. By February of 2000, Iraq had received less than $300 million in oilfield equipment out of a theoretical $1.5 billion possible under a UN memorandum of understanding with Iraq. Of the 377 contracts then on hold under the sanctions committee, 343 were so by request of the US only. A UN diplomat has commented that “Washington doesn’t want to enable the Iraqi economy to recover, therefore it keeps the infrastructure very weak.”


Why the continued hostility, now coming to a head? Because the problem of control is still there. For example early in 2000 US energy secretary Bill Richardson toured OPEC capitals, lobbying intensively for increased output to abate oil prices that were hitting a ten-year high. Saudi Arabia, the OPEC “swing producer,” cooperated by offering in July to boost output by half a million barrels a day, angering other producing countries such as Venezuela, Iran, and Iraq. Saddam Hussein later warned the producing countries not to bow to US pressure, sending prices soaring again.


One should not fall into the common misconception that the overriding US concern is to keep oil prices low. Sometimes we want them high. In the early 1970s the Nixon administration favored higher prices and effectively cooperated with OPEC in bringing about the price explosion of that period. The reason was the perception that Japan and Europe, more dependent on imported energy than the US, would suffer more from higher prices. “OPEC was a tool of US mercantilism,” concluded James Akins, a key administration oil diplomat at the time. Higher crude prices were also supported by the Reagan administration in 1986. In spring of that year Vice President Bush successfully pressured the Saudis to cut production. Bush was acting on an agreement with Iran to help increase Iranian oil revenues, part of the opening to Iran (partly revealed during the Iran-Contra scandal) aimed at restoring US-Iran relations to what they were under the Shah.


The issue isn’t price but control. The Saudi dictatorship does what we want, but the Iraqi dictatorship does not. That’s the problem.


What’s in it for the oil companies if the new Bush administration gets rid of the problem? The US still follows the 1947 policy document, seeking the “removal or modification of existent barriers to the expansion of American foreign oil operations.” Several weeks ago the Washington Post reported that “a US-led ouster of Iraqi President Saddam Hussein could open a bonanza for American oil companies long banished from Iraq, scuttling oil deals between Baghdad and Russia, France and other countries, and reshuffling world petroleum markets, according to industry officials and leaders of the Iraqi opposition. Although senior Bush administration officials say they have not begun to focus on the issues involving oil and Iraq, American and foreign oil companies have already begun maneuvering for a stake in the country’s huge proven reserves of 112 billion barrels of crude oil, the largest in the world outside Saudi Arabia.”


Blood for oil? Not entirely: but you bet.

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