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CounterPunch
February
1, 2003
Code Word: "Stability"
Oil and War
by MILAN RAI
Is the projected war on Iraq intended to reinforce
US domination of the energy resources of the Middle East? This
explanation has such force that the Daily Telegraph featured
a rebuttal by a former speechwriter for President Bush, David
Frum. Frum, now a resident fellow at American Enterprise Institute,
argued in late October that 'Those Americans who worry most about
oil tend to oppose action against Saddam, because they worry
about the effects an Iraq war would have on Saudi Arabia.' The
former editor of the Wall St Journal went on: 'Listen to the
retired officials and distinguished public servants who have
criticised President Bush's Iraq policy--the Brent Scowcrofts
and the James Bakers, the Anthony Zinnis and the Laurence Eagleburgers--and
you will hear that word 'stability' over and over again. 'Stability'
means oil.'
Frum dismissed the arguments that the
war on Iraq would be for 'access to oil': 'America can already
freely purchase all the oil it wants. There has not been a credible
threat to access to oil supplies since the Arab embargo of 1973-74
and there is no credible threat to access today. Saddam wants
to sell more oil, not less.'
The war would not be 'for cheaper oil'--'a
$12-$15 price [per barrel of oil] would close down the larger
part of America's domestic production and drive the country's
dependence on oil imports up from 50 per cent toward the two
thirds or three quarters mark'.
So far Frum is persuasive. He begins
to wobble in the closing stages of his argument, however, when
he argues that the war would not be 'for oil contracts'. The
speechwriter asks rhetorically, 'why would any government--and
especially one as cynical as Mr [Alan] Simpson [MP] believes
America's to be--fight a war widely expected to cost $100 billion
to gain contracts worth $40 billion'. $40bn being Frum's estimate
of the value of the Iraqi oil contracts currently held by Russian
oil companies. $40 billion is 'only a little more than half the
gross state product of Arkansas,' Frum points out. Does Alan
Simpson MP 'really imagine that any president, no matter how
inebriated, would risk the lives of American soldiers--and his
own political future--for that?'
There are two issues here--the value
of Iraqi oil to US corporations, and the question of imperial
cost/benefit analysis. Taking the second question first, throughout
history imperial powers have expended more in wars of conquest
and subjugation than could be earned from the colonies acquired
or subdued. The US wars in Indochina are a staggering example
of how disproportionate economic costs can be relative to perceived
material benefits. The costs of empire are borne by society as
a whole, while the benefits of empire are enjoyed by the influential
few. Therefore, in general, for those who make policy--who share
interests and viewpoints with those who hold domestic power--it
is entirely rational to use the resources of society to secure
the interests of the wealthy and powerful, even if expenditure
far exceeds projected returns. Costs are socialised, benefits
are privatised. That is the reality of our 'free market' economy.
Turning to the question of material benefit,
there is one significant omission from Frum's article: Iraq's
oil reserves. Iraq possesses the second largest proven oil reserves
in the world after Saudi Arabia. The world's proven oil reserves
are roughly 1,000bn barrels of oil. Iraq's proven reserves total
112bn barrels, over a tenth of all known oil supplies. As the
Economist pointed out a few days before Frum's article, 'The
big prize is control of the country's oil reserves.' While UN
sanctions forbid foreigners from investing in the oilfields,
'that has not stopped firms rushing to sign contracts in the
hope of exploiting fields when sanctions are lifted.' Oil companies
from France, China, and India, even Royal Dutch/Shell have signed
deals with Baghdad. 'Lukoil, a Russian giant, has an enormous
field holding down over 11 billion barrels of oil; the firm plans
to invest $4 billion over the lifetime of the field to develop
it.'
The contracts are generous: analysts
at Deutsche Bank estimate that plausible rates of return are
'of the order of 20%'.
Oil from the North Sea costs $3 to $4
a barrel to produce. According to John Teeling, 'head of one
of the few western companies to admit to working in Iraq', Iraqi
oil could cost as little as 97 cents per barrel to produce: 'Ninety
cents a barrel for oil that sells for $30--that's the kind of
business anyone would want to be in. A 97% profit margin--you
can live with that,' says Teeling.
The Economist remarks, 'All of this must
be bad news for those excluded from the party: the Americans.'
Figures in the US oil industry insist that a new regime would
tear up existing contracts, while the head of the Iraqi National
Congress, an umbrella opposition group, has openly declared that
'American companies will have a big shot at Iraqi oil'--in the
event of regime change. As the Economist points out, 'It is hard
to imagine that the American giants would not find some way to
get a piece of the action in Iraq--or 'Klondike on the Shatt
al Arab' as some call it--post-Saddam.'
Iraq has always been a key player in
the Middle East oil market, and was the original source of Middle
Eastern oil. In fact, when Standard Oil of California secured
the first Western oil concession in Saudi Arabia in 1932, a much
bigger and more powerful consortium was on the scene to try to
block the deal--the Iraq Petroleum Company (IPC). The British-dominated
IPC did not believe that oil would be found in Saudi Arabia (the
general consensus of opinion at the time), and they already had
more oil than they knew how to handle in Iraq, so they allowed
the US a toe-hold in the Arabian peninsula. The IPC, made up
of the fore-runner companies to BP, Shell, Total of France, and
Exxon, actually suppressed news of oil discoveries in Iraq and
held down oil production by various devices in order to keep
prices up. These restrictive practices, begun in the 1930s, continued
into the 1960s, as the US Senate Subcommittee on Multinational
Corporations found in 1974. An internal IPC survey document from
1967 made clear that the company had discovered vast oil reservoirs,
but had 'plugged these wells and did not classify them at all
because the availability of such information would have made
the companies' bargaining position with Iraq more troublesome.'
Following a modest nationalisation law
in 1961, which removed IPC's oil rights in those areas in which
it was not actually producing oil, an official in the US State
Department concluded that 'A fairly substantial case could be
made (particularly in arbitration) that IPC has followed a 'dog
in the manger' policy in Iraq, excluding or swallowing up all
competitors, while at the same time governing its production
in accordance with the overall world-wide interests of the participating
companies and not solely in accordance with the interests of
Iraq'. Andreas Lowenfeld noted that 'This of course has been
one of the principal charges of the government of Iraq against
IPC'.
The conflict between the corporations
and the government came to a head in 1972, when Iraq nationalised
the property of the IPC. After a painful battle, the IPC finally
signed the nationalisation agreement on February 28, 1973, receiving
compensation from Baghdad. Now, the surviving members of the
IPC cartel, three of the world's largest public companies, BP,
Shell, and ExxonMobil, have indicated that they may exploit the
fall of Saddam Hussein with a fight for their old possessions
in Iraq, arguing that that the compensation/nationalisation deal
they agreed to in 1973 was signed under duress. This could present
an incoming Iraqi government with a huge legal compensation case
at a very awkward moment.
Professor Thomas Walde, formerly the
principal UN interregional adviser on oil and gas law, has observed
of the oil companies, 'If I were their adviser, I would develop
this into a bargaining chip with the new government. It would
play a role in the race for getting new titles.' So there are
great prizes at stake, both in terms of contracts for reconstructing
the Iraqi oil industry, and for developing new concessions in
the original source of Middle Eastern oil--with phenomenal profits
on the horizon. There are other prizes also.
In 1958, British Foreign Secretary Selwyn
Lloyd summarised British interests in the Gulf thus:
(a) to ensure free access for Britain
and other Western countries to oil products produced in states
bordering the Gulf;
(b) to ensure the continued availability
of that oil on favourable terms and for sterling; and to maintain
suitable arrangements for the investment of the surplus revenues
of Kuwait;
(c) to bar the spread of Communism and
pseudo-Communism in the area and subsequently beyond; and, as
a pre-condition of this, to defend the area against the brand
of Arab nationalism under cover of which the Soviet Government
at present prefers to advance.
The physical supply and pricing of oil
were central concerns, true, but so also was the investment of
Kuwait's share of oil profits in British financial markets. Declassified
US documents note that 'the UK asserts that its financial stability
would be seriously threatened if the petroleum from Kuwait and
the Persian Gulf area were not available to the UK on reasonable
terms, if the UK were deprived of the large investments made
by that area in the UK and if sterling were deprived of the support
provided by Persian Gulf oil.'
This is not a war for oil. It is a war
to control the profits that flow from oil.
Milan Rai is
author of War
Plan Iraq: Ten Reasons Against War (Verso, 2002) and
a member of Active Resistance to the Roots of War (Arrow). He
is also co-founder of Voices in the Wilderness UK, which has
worked for the lifting of UN sanctions in Iraq.
Yesterday's
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Class Warfare Against the Poor
Natalie Johnson Lee
Green
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Russell Mokhiber and
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