[WCUSP] Fw: Blood and Oil

[Libby or Mort Frank]

----- Original Message ----- 
From: <moderator at PORTSIDE.ORG>
To: <PORTSIDE at LISTS.PORTSIDE.ORG>
Sent: Monday, January 08, 2007 9:59 PM
Subject: Blood and Oil


> Blood and oil: How the West will profit from Iraq's
> most precious commodity
> 
> The Independent UK
> http://news.independent.co.uk/world/middle_east/article2132574.ece
> 
> Published: 07 January 2007
> 
> The 'IoS' today reveals a draft for a new law that
> would give Western oil companies a massive share in
> the third largest reserves in the world. To the
> victors, the oil? That is how some experts view this
> unprecedented arrangement with a major Middle East oil
> producer that guarantees investors huge profits for
> the next 30 years.
> 
> 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 Organisation 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 US 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 US 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 US 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 US 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 US 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
> US 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 are 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 per cent 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 per cent of the profits in a
> production sharing agreement, once all the costs have
> been recouped, is a large amount." In more stable
> countries, 10 per cent would be the norm.
> 
> While the costs are being recovered, companies will be
> able to recoup 60 to 70 per cent of revenue; 40 per
> cent 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 per cent 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 per
> cent 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 per cent 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 non government 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 $1bn 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 US 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 US 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 US and allied companies because
> of the disastrous war."
> 
> Mr Muttitt echoed warnings that unfavourable 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 US intelligence report as a cause
> celebre for terrorism.
> 
> America protects its fuel supplies - and contracts
> 
> Despite US 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 US-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
> US 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 foreign 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 US companies piecing a broken
> Iraq together
> 
> The task of rebuilding a shattered Iraq has gone
> mainly to US 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 US 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 US 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 US 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 US
> giant Halliburton, which to date has secured contracts
> in Iraq worth $13bn (#7bn), including an uncontested
> $7bn contract to rebuild Iraq's oil infrastructure.
> Other companies benefiting from Iraq contracts include
> Bechtel, the giant US conglomerate, BearingPoint, the
> consultant group that advised on the drawing up of
> Iraq's new oil legislation, and General Electric.
> According to the US-based Centre for Public Integrity,
> 150-plus US 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 US
> 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.
> 
> $2 trillion Estimated cost of the Iraq war to the US,
> according to the Nobel prize-winning economist Joseph
> Stiglitz.
> 
> WHAT THEY SAID
> 
> "Oil revenues, which people falsely claim that we want
> to seize, should be put in a trust fund for the Iraqi
> people"
> 
> Tony Blair; Moving motion for war with Iraq, 18 March
> 2003
> 
> "Oil belongs to the Iraqi people; the government
> has... to be good stewards of that valuable asset "
> 
> George Bush; Press conference, 14 June 2006
> 
> "The oil of the Iraqi people... is their wealth. We
> did not [invade Iraq] for oil "
> 
> Colin Powell; Press briefing, 10 July 2003
> 
> "Oil revenues of Iraq could bring between $50bn and
> $100bn in two or three years... [Iraq] can finance its
> reconstruction"
> 
> Paul Wolfowitz; Deputy Defense Secretary, March 2003
> 
> "By 2010 we will need [a further] 50 million barrels a
> day. The Middle East, with two-thirds of the oil and
> the lowest cost, is still where the prize lies"
> 
> Dick Cheney; US Vice-President, 1999
> 
> ===
> 
> _____________________________________________
> 
> Portside aims to provide material of interest
> to people on the left that will help them to
> interpret the world and to change it.
> 
> Submit via email: moderator at portside.org
> Submit via the Web: portside.org/submit
> Frequently asked questions: portside.org/faq
> Subscribe: portside.org/subscribe
> Unsubscribe: portside.org/unsubscribe
> Account assistance: portside.org/contact
> Search the archives: portside.org/archive
>