Pepe Escobar: On the New Iraq Oil Law

From Asia Times
As usual with Escobar a hard hitting article, quite different both in tone and substance from most of the main line press reports--when the press even notices.

Middle East
Feb 28, 2007



THE ROVING EYE
US's Iraq oil grab is a done deal
By Pepe Escobar

"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." - US Vice President Dick Cheney, then Halliburton chief executive officer, London, autumn 1999

US President George W Bush and Vice President Dick Cheney might as well declare the Iraq war over and out. As far as they - and the humongous energy interests they defend - are concerned,



only now is the mission really accomplished. More than half a trillion dollars spent and perhaps half a million Iraqis killed have come down to this.

On Monday, Prime Minister Nuri al-Maliki's cabinet in Baghdad approved the draft of the new Iraqi oil law. The government regards it as "a major national project". The key point of the law is that Iraq's immense oil wealth (115 billion barrels of proven reserves, third in the world after Saudi Arabia and Iran) will be under the iron rule of a fuzzy "Federal Oil and Gas Council" boasting "a panel of oil experts from inside and outside Iraq". That is, nothing less than predominantly US Big Oil executives.

The law represents no less than institutionalized raping and pillaging of Iraq's oil wealth. It represents the death knell of nationalized (from 1972 to 1975) Iraqi resources, now replaced by production sharing agreements (PSAs) - which translate into savage privatization and monster profit rates of up to 75% for (basically US) Big Oil. Sixty-five of Iraq's roughly 80 oilfields already known will be offered for Big Oil to exploit. As if this were not enough, the law reduces in practice the role of Baghdad to a minimum. Oil wealth, in theory, will be distributed directly to Kurds in the north, Shi'ites in the south and Sunnis in the center. For all practical purposes, Iraq will be partitioned into three statelets. Most of the country's reserves are in the Shi'ite-dominated south, while the Kurdish north holds the best prospects for future drilling.

The approval of the draft law by the fractious 275-member Iraqi Parliament, in March, will be a mere formality. Hussain al-Shahristani, Iraq's oil minister, is beaming. So is dodgy Barnham Salih: a Kurd, committed cheerleader of the US invasion and occupation, then deputy prime minister, big PSA fan, and head of a committee that was debating the law.

But there was not much to be debated. The law was in essence drafted, behind locked doors, by a US consulting firm hired by the Bush administration and then carefully retouched by Big Oil, the International Monetary Fund, former US deputy defense secretary Paul Wolfowitz' World Bank, and the United States Agency for International Development. It's virtually a US law (its original language is English, not Arabic).

Scandalously, Iraqi public opinion had absolute no knowledge of it - not to mention the overwhelming majority of Parliament members. Were this to be a truly representative Iraqi government, any change to the legislation concerning the highly sensitive question of oil wealth would have to be approved by a popular referendum.

In real life, Iraq's vital national interests are in the hands of a small bunch of highly impressionable (or downright corrupt) technocrats. Ministries are no more than political party feuds; the national interest is never considered, only private, ethnic and sectarian interests. Corruption and theft are endemic. Big Oil will profit handsomely - and long-term, 30 years minimum, with fabulous rates of return - from a former developing-world stalwart methodically devastated into failed-state status.

Get me a PSA on time
In these past few weeks, US Ambassador Zalmay Khalilzad has been crucial in mollifying the Kurds. In the end, in practice, the pro-US Kurds will have all the power to sign oil contracts with whatever companies they want. Sunnis will be more dependent on the Oil Ministry in Baghdad. And Shi'ites will be more or less midway between total independence in the south and Baghdad's dictum (which they control anyway). But the crucial point remains: nobody will sign anything unless the "advisers" at the US-manipulated Federal Oil and Gas Council say so.

Nobody wants to colonial-style PSAs forced down their throat anymore. According to the International Energy Agency, PSAs apply to only 12% of global oil reserves, in cases where costs are very high and nobody knows what will be found (certainly not the Iraqi case). No big Middle Eastern oil producer works with PSAs. Russia and Venezuela are renegotiating all of them. Bolivia nationalized its gas. Algeria and Indonesia have new rules for future contracts. But Iraq, of course, is not a sovereign country.

Big Oil is obviously ecstatic - not only ExxonMobil, but also ConocoPhillips, Chevron, BP and Shell (which have collected invaluable info on two of Iraq's biggest oilfields), TotalFinaElf, Lukoil from Russia and the Chinese majors. Iraq has as many as 70 undeveloped fields - "small" ones hold a minimum of a billion barrels. As desert western Iraq has not even been exploited, reserves may reach 300 billion barrels - way more than Saudi Arabia. Gargantuan profits under the PSA arrangement are in a class by themselves. Iraqi oil costs only US$1 a barrel to extract. With a barrel worth $60 and up, happy days are here again.

What revenue the regions do get will be distributed to all 18 provinces based on population size - an apparent concession to the Sunnis, whose central areas have relatively few proven reserves.

The Sunni Arab muqawama (resistance) certainly has other ideas - as in future rolling thunder against pipelines, refineries and Western personnel. Iraq's oil independence will not go down quietly - at least among Sunnis. On the same day the oil law was being approved, a powerful bomb at the Ministry of Municipalities killed at least 12 people and injured 42, including Vice President Adel Abdul Mahdi. Mahdi has always been a feverish supporter of the oil law. He's a top official of the Shi'ite party, the Supreme Council for the Islamic Revolution of Iraq (SCIRI).

A whole case can be made of SCIRI delivering Iraq's Holy Grail to Bush/Cheney and Big Oil - in exchange for not being chased out of power by the Pentagon. Abdul Aziz al-Hakim, the SCIRI's leader, is much more of a Bush ally than Maliki, who is from the Da'wa Party. No wonder SCIRI's Badr Organization and their death squads were never the target of Washington's wrath - unlike Muqtada al-Sadr's Mehdi Army (Muqtada is fiercely against the oil law). The SCIRI certainly listened to the White House, which has always made it very clear: any more funds to the Iraqi government are tied up with passing the oil law.

Bush and Cheney got their oily cake - and they will eat it, too (or be drenched in its glory). Mission accomplished: permanent, sprawling military bases on the eastern flank of the Arab nation and control of some of largest, untapped oil wealth on the planet - a key geostrategic goal of the New American Century. Now it's time to move east, bomb Iran, force regime change and - what else? - force PSAs down their Persian throats.

More on the Iraq Oil Law from the UK

Finally the Observer in the UK has taken notice of the new oil law in Iraq.


Iraq poised to hand control of oil fields to foreign firms


Baghdad under pressure from Britain to pass a law giving multinationals rights to the country's reserves

Heather Stewart, economics correspondent
Sunday February 25, 2007
The Observer


Baghdad is under pressure from Britain and the US to pass an oil law which would hand long-term control of Iraq's energy assets to foreign multinationals, according to campaigners.
Iraqi trades unions have called for the country's oil reserves - the second-largest in the world - to be kept in public hands. But a leaked draft of the oil law, seen by The Observer, would see the government sign away the right to exploit its untapped fields in so-called exploration contracts, which could then be extended for more than 30 years.



Foreign Office minister Kim Howells has admitted that the government has discussed the wording of the Iraqi law with Britain's oil giants.
In a written answer to a parliamentary question, from Labour's Alan Simpson, Howells said: 'These exchanges have included discussion of Iraq's evolving hydrocarbons legislation where British international oil companies have valuable perspectives to offer based on their experience in other countries.' The talks had covered 'the range of contract types which Iraq is considering'.

Control of oil is an explosive political issue in Iraq. Hasan Jumah Awwad al-Asadi, leader of the country's oil workers' union formed after the invasion in 2003, warned this month: 'History will not forgive those who play recklessly with the wealth and destiny of a people.'

With much of the country on the brink of civil war, and a fractious government in Baghdad, campaigners say Iraq is in a poor position to negotiate with foreign oil firms. 'Iraq is under occupation and its people are facing relentless insecurity and crippling poverty. Yet, with the support of our government, multinationals are poised to take control of Iraq's oil wealth,' said Ruth Tanner, senior campaigner at War On Want.

The law, which is being discussed by the Iraqi cabinet before being put to the parliament, says the untapped oil would remain state-owned but that contracts would be drawn up giving private sector firms the exclusive right to extract it.

'There is this fine line, that the wording is seeking to draw, that allows companies to claim that the oil is still Iraqi oil, whereas the extraction rights belong to the oil companies,' says Kamil Mahdi, an Iraqi economist at Exeter University. He criticised the US and Britain, saying: 'The whole idea of the law is due to external pressure. The law is no protection against corruption, or against weakness of government. It's not a recipe for stability.'

Simpson said 'This confirms the view of those who have said all along that the war in Iraq was not about weapons of mass destruction, but the control of the levers of mass production ... This is a cartel carve-up by the occupying powers.'

Oil production in Iraq has slipped to below two million barrels a day - less than before the invasion - and Britain and the US argue that Iraq urgently needs foreign investment to boost output. But Ewa Jasiewicz, of campaign group Platform, said all the other Gulf states had kept production in government hands. 'Iraq could borrow the money to develop its industry, and pay that off through oil revenues.'

Iraq reconstruction" Making Iraq investment Friendly

Of course there is a slight security problem that needs to be solved before foreign investment will line up to pour money into Iraq. For now the US taxpayer can be assured that tax dollars are being spent to make Iraq oil etc. available for exploitation by foreign companies. This is a rare behind the scenes view of what bringing democracy to Iraq really means.

Shock and oil: Iraq's billions & the White House connection
Stephen Foley reports from New York
Published: 14 January 2007
The American company appointed to advise the US government on the economic reconstruction of Iraq has paid hundreds of thousands of dollars into Republican Party coffers and has admitted that its own finances are in chaos because of accounting errors and bad management.
BearingPoint is fighting to restore its reputation in the US after falling more than a year behind in reporting its own financial results, prompting legal actions from its creditors and shareholders.
According to the Center for Responsive Politics, BearingPoint employees gave $117,000 (£60,000) to the 2000 and 2004 Bush election campaigns, more than any other Iraq contractor. Other recipients include three prominent Congressmen on the House of Representatives' defence sub-committee, which oversees defence department contracts.
One of the biggest single contributors to BearingPoint's in-house political fund was James Horner, who heads the company's emerging markets business which is working in Iraq and Afghanistan. He donated $5,000 in August 2005.
The company's shares have collapsed to a third of their value when the firm listed in 2001, and it faces being thrown out of the New York Stock Exchange altogether. Despite annual revenues of $3.4bn, the company made a loss of $722m in 2005. Those figures were released only last month, nine months late, and the company has not yet been able to report any fully audited figures at all for 2006.
Analysts in the US claim the reason is a culture of poor management controls stretching back to before the company was carved out of KPMG, the global accounting giant, at the start of the decade. A litany of failings included invoices going astray, poorly trained accounting staff and a failure to work out the tax implications of having so many employees working in foreign countries.
The chaos is not the result of malfeasance, but is "embarrassing and inexcusable" none the less, according to Harry You, a former computer company finance chief brought in to head BearingPoint in 2005 after it fired its long-standing previous chief executive, the former US army captain Randolph Blazer. BearingPoint did not return calls asking for comment yesterday.
BearingPoint is being paid $240m for its work in Iraq, winning an initial contract from the US Agency for International Development (USAid) within weeks of the fall of Saddam Hussein in 2003. It was charged with supporting the then Coalition Provisional Authority to introduce policies "which are designed to create a competitive private sector". Its role is to examine laws, regulations and institutions that regulate trade, commerce and investment, and to advise ministries and the central bank.
Last week The Independent on Sunday revealed that a BearingPoint employee, based in the US embassy in Baghdad, had been tasked with advising the Iraqi Ministry of Oil on drawing up a new hydrocarbon law. The legislation, which is due to be presented to Iraq's parliament within days, will give Western oil companies a large slice of profits from the country's oil fields in exchange for investing in new oil infrastructure.
BearingPoint's first task in Iraq in 2003 was to help to plan the introduction of a new currency, and it was hoped that it would eventually organise small loans to Iraqi entrepreneurs to stimulate a significant market economy. The contract award was immediately criticised by public integrity watchdogs and by the company's rivals, because BearingPoint advisers to USAid had a hand in drafting the requirements set out in the tender. It spent five months helping USAid to write the job specifications and even sent some employees to Iraq to begin work before the contract was awarded, while its competitors had only a week to read the specifications and submit their own bids after final revisions were made.
USAid's independent inspector ruled that "BearingPoint's extensive involvement in the development of the Iraq economic reform program creates the appearance of unfair competitive advantage in the contract award process". The company said it was selected through a transparent and competitive bidding process.
Across the world, BearingPoint has become, thanks to USAid funding, a part of the US government's strategy of spreading free-market reforms to developing countries and America's allies. Elsewhere in the Middle East it is advising the government of Jordan on how to minimise the regulation of business and reform its tax policies in order to attract foreign investment; in Egypt it is advising on customs reform and respect for international companies' patents.
It has won more than $100m of business in Afghanistan since American troops invaded in 2002, and has been helping to build a banking system, training civil servants in the finance ministry and offering advice on economic policy.
Its economic reconstruction work grew out of early work in eastern Europe after the fall of communism, and became a significant contributor to the business after it won contracts in the former Yugoslavia following US intervention there.
The company changed its name to BearingPoint from KPMG Consulting in 2002, shortly after separating from its parent company. In the years since, contracts with the US government have proved the highlight of the business, while its work for private company clients has failed to live up to hopes. In part because of its reliance on the US federal government - which accounts for about 30 per cent of revenues - BearingPoint has dramatically stepped up its attempts to buy influence in Washington. Its contracts in Iraq and Afghanistan coincide with a big increase in its lobbying efforts on Capitol Hill. In 2005, the latest year for which figures have been collated, BearingPoint paid $1m to lobbyists, equalling the record total it paid in 2003. That is five times its average annual bill for lobbyists prior to the war in Iraq.
It also dramatically increased its political contributions in the run-up to the midterm elections, distributing $120,000 to candidates and campaign groups from its employee-sponsored political fund. That compares with $61,000 in the 2004 elections.