Iraq Oil: The Devil Is In the Details
In a rare display of comity, the Iraqi cabinet has approved a draft of a law setting guidelines for distribution of oil revenues and foreign investment in the country’s immense and largely untapped oil riches.
The draft law allows the central government to distribute oil revenues to the provinces or regions based on population, which could lessen the economic concerns of oil poor Sunnis who fear being cut out of the vast potential oil wealth by the dominant Shiites and Kurds, who control areas of the country where most crude oil reserves lie.
But the devil, as they say, is in the details, including Production Sharing Agreements under which foreign companies — including Exxon Mobil, Chevron and Shell — would control all oil production from new Iraqi fields and reap a huge share of the profits for years to come.
Earlier this month, I explored the potential pitfalls of the law here. More here on the cabinet approval.
38 Responses to “Iraq Oil: The Devil Is In the Details”
Now, don’t anyone act surprised.
Reminds me of the Cheney Energy task force done in secret.
Kinda takes your breath away to see the fruits of democracy ripening in a free society. Now the Iraqis are sure to love their liberators when they get a load of this agreement. It shows us just why Bush and Cheney never doubted their mission for a moment-they went at it with evangelical fervor, in order to worship at the altar of Big Oil. Who cares about a few poll results when your biggest campaign contributors are Shell, Exxon and Texaco??
This deal if enacted, is just plain theft. In the US property owners get around 1/8 of oil profits, the Iraqis will get near 0 for future rights.
Did anyone actually read the article Shaun linked? and where did you come up with this 1/8th figure Rudi? or the ‘near 0 for future rights’? I see a contract that doesn’t garuntee the oil companies anything, but does let them to business with local officials instead of national ones.
I don’t know all the details, but I have an alternative explanation than ‘big evil companies’. Iraq is going to have a large amount of violence for the forseeable future. I can’t imagine that the attacks on oil infranstructure will stop anytime soon. That is going to require a HUGE amount of capital for security to get the oil safely out of the country. With America looking like it might very well pull the plug or at least cut back troops lvls/security funding, Iraq might be hedging its bets, allowing private companies to put up the money needed to get any oil at all sold.
I draw your attention to an article “Oil, Iraq and America’ by Dilip Hiro, Indian novelist and Middle East analyst, posted December 16, 2002 (more than four years ago).
It reads: “Of the two slogans that the Bush Administration has coined to sell the idea of invading Iraq–installing democracy and monopolizing Iraq’s petroleum riches–the one about democracy means little to ordinary folks.
“It is the prospect of uncontested access to the world’s second-largest oil reserves–leading to the end of America’s growing reliance on petroleum from Saudi Arabia, the homeland of most of the 9/11 hijackers–that excites popular imagination in the United States. And the US hawks, who are determining Iraq policy, know it.
“Interestingly, there is a rare concurrence of perception between Americans and Iraqis at both official and popular levels regarding the centrality of Iraqi oil to the current crisis and the earlier conflicts with Baghdad. ‘The weapons of mass destruction is just an excuse,’ says Tariq Aziz, Iraq’s deputy prime minister. ‘The Americans are after the Iraqi oil.’
“Many months earlier, Muhammad Bagga, an elderly resident of Saddam City, Baghdad, explained the 1991 Gulf War to me thus: ‘The big Western powers got angry because Saddam Hussein wanted to benefit all Arabs from Iraq’s oil; and so they attacked us.’
“Thinking in parallel with the Pentagon’s top civilians, who regularly feed the media with reassuring scenarios of surgical strikes against the Saddam regime and negligible ‘collateral damage,’ America’s petroleum optimists visualize the US oil corporations acquiring an unimagined cornucopia the moment the Iraqi dictator is ousted.”
I just thought that there is no harm in jogging the memory!!!
Kevin H,
You are the voice of reason. Unfortunately some people have no understanding of the factor of risk in investment. High risk without promise of high yield means the money goes elsewhere, period. Iraq’s elected officials understood that, but war protestors and Bush bashers see this only as the unfair and corrupt influence of Big Oil.
The 1/8 share is typical of oil small deals in the US midwest. I doubt if the oil companies treat the US public lands with similar royalties. Iraq is known to have oil, there is no risk in further developement there,except for security. What is to stop Exxon from dropping wells in existing fields to extract more revenue from existing fields at higher profits from this sham law. I smell Chalibi’s paws all over this, but it was WMD’s – LOL.
Rudi, In any other conversation you’d be screaming about the security situation in Iraq but here its an afterthought. Oh, no, Exxon, no need to worry about your employees being kidnapped and beheaded. What, they don’t want to go to Iraq and you have to pay them much higher rates to get them to go? How silly! And no, there’s no need to guard your drilling sites and pipelines, why would you be concerned about that?
Not to mention one huge risk: if the Iraqi govt falls, then these deals will be null and void. So why wouldn’t the companies require big payoffs in order to buffer against that?
I wonder if there was a public bidding process for the contracts to access the oil.
CStan, the point is that US oil companies are going to reap HUGE financial windfall from this and its not a coincidence. You think Exxon et al was just sitting on the sidelines when this happened, especially with this administrations deep ties to the industry? For the first time I’m actually starting to believe this might have been more about oil than I originally thought.
I have a theory about life. It says that life is not an episode of Three’s Company, and that things are very often exactly as they appear. When the architects of a war are very closely linked to a group that is going to benefit greatly from that war, I think it really bears looking into. I also think its bad for the region for American companies to be siphoning off the wealth while the country is in still turmoil.
So what you’re saying is that corporations are motivated by profit. And that’s a newsflash to you? You never realized this before?
Yes, if things work out then US oil companies (and some Russian, Chinese ones, etc) will reap big profits. If things don’t work out (which is what I thought you guys were sure was going to happen- anarchy and war in the region for years to come?) then the companies will have invested billions and lost money on the deals. That’s how investment works- high risk is only even considered when there is potential for high reward.
As far as connections between the policymakers and the oil companies, I have no doubt that the companies were in favor of the war, to open up this potential opportunity. I also have no doubt that our govt saw that the opportunity therein would also buffer our population against the inevitable energy crisis (since we’ve likely passed the worldwide Peak Oil point and reserves are on the decline worldwide). That is in our national interest. When national interests coincide with business interests, I see nothing wrong with the government taking that course. When these interests also coincided with humanitarian interests of liberating Iraq from a brutal dictator and protecting national security interests in light of what we believed to be a threat of WMD, that’s even more reason that the policy made sense.
Let’s nip that WMD excuse right in the bud. Our leaders never thought Iraq’s weapons were an imminent threat to the United States. If they had thought that, they wouldn’t have paraded around for a year making the case for war. They just would have done it, end of story.
Without the threat of WMDs as an excuse, the moral case for war falls apart. There are plenty of other countries with brutal dictators (that we support, Saudi Arabia) and some of them even have oil (Saudi Arabia & Iran).
That leaves one reason, Oil. Should we have invaded Iraq just for it’s oil, C Stanley?
So, its ok to invade a sovereign nation, put 500,000 of its people out of work and tear down their government,create the conditions that lead to chaos, anarchy and hundreds of thousands of deaths, write up favorable deals for our oil companies as long as it is in our national interest? This seems like a moral decision to you?
It’s not a matter of if, C…it’s a matter of when…
I’m not following that logic at all. If they believed it they wouldn’t have made the case for it? What sense does that make? There are actually two possibilities: one is that the administration believed the intel and realized that this was the legal justification for war, so they played up this particular justification. The other is that they didn’t actually believe that there were WMD. For that to be true, first of all we’d have to assume that such skepticism was highly disproportionate to the rest of the world, because most people did believe that Saddam had WMD (such an odd assumption, based on the fact that he claimed he did, refused to produce records that he had destroyed what we knew he had, defectors who had knowledge of the WMD programs told us they were still active, etc, etc), and we’d have to assume that the administration was jumping through hoops to get others to believe that the WMD’s justified the war when they knew that we’d invade and then not be able to find any evidence of them. Say what you will about the policymakers: they are not stupid enough to think that after all the hoopla, they wouldn’t be expected to produce the goods after the invasion. THAT’S why the “Bush lied” meme makes no sense.
Kim,
Your narrative is ridiculous. If you change it to: invade a country to remove its illegitimate, brutally oppressive government and allow a representative government to be installed which would then negotiate oil contracts that it feels are in the interest of the Iraqi people, then I’d say yes, that’s morally permissible.
I agree with your skepticism, CP, and I’m sure the CEO’s, boards and stockholders of the major oil companies see it that way as well.
C Stanley,
You’re the President of the United States. You have intel that says Iraq is an imminent danger to the United States. What do you do?
I’ll tell you what Bush did. He spent a year dilly-dallying making his case that Iraq was a threat. A case that the U.S. public lapped right up, but that the international community and the United Nations were deeply opposed to.
So, in your mind, Bush honestly thought Iraq was an imminent threat, and yet he waited a year to actually remove that threat? That in itself would be criminally negligent if true. How many U.S. citizens could have died while Powell was giving his phoney presentation to the UN?
Here’s what I would do if I were President and I thought Iraq was an imminent danger to the safety of the United States. I would begin military operations to neutralize the threat as soon as possible.
Chris,
Define imminent. Did you miss the parts where the Bush doctrine was clearly based on pre-emptive strikes against building threats? That means that he didn’t necessarily think that Iraq had already engaged in planning to attack the US either directly or by providing WMD to al Qaeda or other Islamist groups. He was making the case that there was reason to think that this would happen in the future, and that if we waited until that happened it would be too late.
BTW, Chris, here’s an excerpt from Bush’s 2003 State of the Union, just a few weeks before the invasion began:
C Stanley,
So, in essence the United States needs no actual proof to proceed with a military invasion?
It’s not hard to come up with a long list of countries that could WMDs, have the capacity to manufacture WMDs and might attack the United States.
Ah Chris, well at least I seem to have made some progress getting you to understand what the Bush doctrine really was (preemptive) rather than what you seemed to assume it was (reaction to imminent threats).
I’m not saying that I agree with the Bush doctrine though. At the time I thought it had merit (and in theory I still think so) but its practical application is based on the need for extremely good intelligence gathering and analysis. Those things will never be 100% so now I’m not so sure that the Bush doctrine should ever be invoked, but I also realize that what he said in that speech is true: failing to invoke it may very well mean that we aren’t able to prevent serious attacks against us; we may have to wait until after another 9/11 style attack occurs and then react to it instead of being able to prevent all such attacks.
CStanley: ..”war protestors and Bush bashers see this only as the unfair and corrupt influence of Big Oil.”
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Oil, like money, does corrupt. Necessity and corruption have always co-extisted, and one doesn’t have to be a Bush basher to recognize that. China’s foreign policy is driven by its voracious appetitie for oil, and I would claim that in the process, its role in global issues of concern (Iran) have been corrupted.
More to the point is the question of how Iraqis will react to this law. Their parliamentary debates are yet to take place, and there perceptions about the US and its oil companies will play as important a role as realistic assessments. One unintended consequence of the war is that a large segment of Iraqis has fallen into the ‘blame the US for everything, even bad weather’ mode of thinking, according to a commentator from Al Jazeera.
We’re a long way from having to worry about profits.
Actually I see this as a good thing, if we want to make sure that US oil companies aren’t given unfair advantage. If anything, I think the Iraqi Oil Ministry will bend over backwards to give some preferential treatment to NON- US oil companies. At the same time, there’s no doubt that the US companies will get some potentially lucrative (though risky) contracts because in many cases they’re the ones with the know-how and resources. In the end I think that will work out for the best with some international distribution and the Iraqis determining this, rather than being beholden to US interests.
CS made this point too, but I’d like to drive it home.
Sam:
and kritter:
Show me where this new law says that only US companies can bid on these fields. I’m sure Russia and China will be interested as well, not to mention Europe, possibly venezula. The facts show this to be an empty conspiracy theory fueled by (in my opinion justifiable) anger over the rush to war.
There is one simple question you need to all ask: Does this law Bias the oil field contracts towards US companies? If you are going to answer yes, please explain how.
I still don’t see any real difference.
Another thing, all of this “Bush co and the evil oil companies are the illumnati” crap is distracting from the very potent weaknesses of this law.
Future oil contracts will be bargined for locally. lets take the following scenario:
I am a tribal leader from the oil rich north. An oil company comes to me and says they would like to drill nearby for oil. They propose to take 1/8th of the profit as usual. However I realize that the other 7/8th won’t really go to my people, it will get put into some huge government beurocracy that if rife with corruption and I would be lucky if my people got 2 cents on the dollar returned to them. So instead, I offer the oil company 50% of all of the profits if they will build local schools, local roads, local powerplants, etc. Now basically what I’ve done by helping my own people is to screw the oil poor south out of revenue, and they probably won’t be too happy about it.
That is why its a bad law, not because the free market plays hardball.
Chris, the difference is that initially you were arguing that the Bush administration must not have really believed there was an imminent threat, or they wouldn’t have wasted time trying to get international approval for the war. I then showed you that Bush never said the threat was imminent, in fact he specifically rejected the argument that threats have to be imminent before we act on them.
Get it now? That means your assumption was incorrect, so your basis for assuming bad faith has now been knocked down. Care to try again to support that assumption on some other basis?
CS- So we get to decide when a ruler is brutal and illegitimate and remove him? That should justify an invasion? It may seem ridiculous to you, but to me that is what we did. I’m not claiming that Saddam wasn’t a brutal dictator-just our right to decide who to replace-Should we replace Musharraf- he’s brutal and repressive- what about the Saudi royals? They’re autocratic dictators that brutalize their people as well.
CS: “I then showed you that Bush never said the threat was imminent, in fact he specifically rejected the argument that threats have to be imminent before we act on them.”
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That’s a bit disingenious, I think. Statements like this were usually throwaway lines or parentheticals, while what loomed large in every speech was 9/11, 9/11, 9/11. There was a deliberate attempt to maintain an atmosphere of fear, which served to rally the nation behind him without careful attention to his entire message.
The nation was traumatized a the time. Warhawks capitalized on the trauma. In my book, that’s a form of deceit.
Kim, You’re ignoring the history of Gulf War I and the terms of the cease fire, and that the UN wouldn’t enforce the resolutions against Saddam when he broke the terms, and that Saddam was being held somewhat in check by sanctions but it would have been impossible to continue those sanctions without a humanitarian crisis. The fact that he was a dictator is relevant but it’s not the only fact that’s relevant.
And I say that you are being disingenuous as well. There’s obligation on the part of pubic officials who make speeches, and there’s obligation on the part of those who listen to the speeches. I’m not completely dismissing Bush from that obligation: at times I did disagree with the rhetoric (I’ve had more of those disagreements with Cheney by far, than with Bush himself), but you seem to dismiss any responsibility of the public to hear what is actually being said. Instead you dismiss what was actually said as a throwaway comment.
C Stanley,
How could Bush both think that Iraq had WMDs and at the same time not think they are an imminent danger?
CS: ..”you seem to dismiss any responsibility of the public to hear what is actually being said”
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No, but I am saying that the speeches by Bush and Cheney were designed to prey on emotions of fear, thus incapaciting the public’s capacity for rational analysis. One method of getting a child to do what you want is to tell him the bogey man will get him if he disobeys.
that Saddam was being held somewhat in check by sanctions but it would have been impossible to continue those sanctions without a humanitarian crisis. The fact that he was a dictator is relevant but it’s not the only fact that’s relevant.
CS- But we could have altered the terms of those sanctions if they were too harsh. General Zinni wanted to ease some of the restrictions on the population to avert a humanitarian crisis but both Clinton and Bush turned him down. So, invading Iraq wasn’t our only choice.
Bush and Cheney used the patriotic fervor that followed 9/11 to tie Saddam in with al queda. They thought the timing was perfect.
domajot,
You’re proving my point: you’re analogy compares the US public to children. If you consider that we’re adults, we should be able to rationally distinguish between propaganda and reality. Certainly our Congressmen have a responsibility to be a counterweight to the Executive branch as well: why did most of them go along with the threat of Sadddam? I’m simply saying you are putting all responsibility on the administration. They DID try to manipulate public opinion, but first of all they may have had legitimate reasons for feeling that the threat was real so that they believed the public had to be convinced of it, and second, Congress and the public are NOT children, we have some responsibility to examine what is factual and what might be hype.
Kim: It’s not just that the sanctions were too tough, it’s that sanctions really can’t work long term against a dictator who doesn’t care about his people. And any relaxation of the sanctions, like the Oil for Food program, is highly corruptible, which is exactly what happened. There’s no way to help the population significantly without the dictator skimming most of the funds, as long as there are immoral people who will aid him in doing so. Greed and corruption will find a way when theres a government like that in place.
CS- I totally disagree. There was talk about relaxing the sanctions on items like food and medicine, while maintaining them for weapons/military/industrial items. Adjusting the sanctions would have contained Saddam without causing a humanitarian crisis. I do agree with you that he cared nothing about his people.
The real crime is that the sanctions had worked much better than we had realized, as had the air attacks in ’98 that the GOP snarked were “wagging the dog”. That’s why our army got to Baghdad so quickly without many casualties. The Iraqi army gave up as soon as we got there. Saddam was a master at bluffing, as more accurate intelligence would have told us. Tragic mistake, all around.