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Halliburton’s Secret Deal with the Pentagon for Iraq’s Oil

Months before the United States military showered Iraq with bombs and missiles, the Department of Defense was secretly working with Vice President Dick Cheney’s old company, Halliburton Corp., on a deal that would give the world’s second largest oil services company total control over Iraq’s oil fields, according to interviews with Halliburton’s most senior executives.

Moreover, classified Halliburton documents obtained by CounterPunch over the past month prove that the war in Iraq was as much about controlling the world’s second largest oil reserves as it did about overthrowing the regime of Iraq’s President Saddam Hussein.

The deal between the Department of Defense and Halliburton unit Kellogg, Brown & Root to operate Iraq’s oil industry, which was hatched as early as October 2002, according to the documents, and could ultimately be worth $7 billion, couldn’t have come at a better time for Halliburton.

Back in October of last year, Halliburton was saddled with a multibillion-dollar asbestos liability and the company was also suffering through a slowdown in domestic oil production. Halliburton’s stock price responded swiftly, plummeting to $12.62 in October 2002, from a high of $22 the year beforee, and rumors began to swirl that the company would be forced to file for bankruptcy.

But news of a pending war in Iraq meant that Halliburton’s financial troubles would, like Saddam Hussein’s regime, be history. Classified documents from November 2002 show that the Department of Defense recommended that The Army Corps of Engineers award a contract to Brown & Root to extinguish Iraqi oil well fires in addition to “assessing the condition of oil-related infrastructure; cleaning up oil spills or other environmental damage at oil facilities; engineering design and repair or reconstruction of damaged infrastructure; assisting in making facilities operational; distribution of petroleum products; and assisting the Iraqis in resuming Iraqi oil company operations.”

“The fact that the Department was planning for the possibility that it would need to repair and provide for continuity of operations of the Iraqi oil infrastructure was classified until March 2003,” the agency said on its web site. “This prevented earlier acknowledgement or announcement of potential requirements to the business community.”

The Army Corps of Engineers has declassified portions of some documents related to its deal with Brown & Root. The deal memo can be viewed at <http://www.hq.usace.army.mil/cepa/iraq/factsheet.htm>

Since October, when Halliburton was awarded the contract to repair Iraq’s oil industry, the company’s stock has nearly doubled. On Tuesday, the stock closed at $23.90.

Publicly, when the Army Corps of Engineers was criticized by Washington lawmakers earlier this year for awarding the no-bid contract to Brown & Root because of the company’s strong ties to Cheney, the agency said Brown & Root would do nothing more than extinguish oil well fires. Brown & Root was chosen, according to the Army Corps of Engineers, because Brown & Root could be “deployed” on short notice.

However, according to interviews with Halliburton executives, company employees were working out of a hotel room in Kuwait City as far back as November assessing the Iraq’s oil infrastructure and mapping out plans for operating Iraq’s oil industry.

A report in the magazine Business 2.0 from April 2003 makes this point clear.

“From behind the obsidian mirrors of his wraparound sunglasses, Ray Rodon surveys the vast desert landscape of southern Iraq’s Rumailah oilfield. A project manager with Halliburton’s engineering and construction division, Kellogg Brown & Root, Rodon has spent months preparing for the daunting task of repairing Iraq’s oil industry. Working first at headquarters in Houston and then out of a hotel room in Kuwait City, he has studied the intricacies of the Iraqi national oil company, even reviewing the firm’s organizational charts so that Halliburton and the Army can ascertain which Iraqis are reliable technocrats and which are Saddam loyalists,” the story says.

Halliburton, in a March news release, said it first began working on a plan to repair Iraq’s oil infrastructure at the request of the Defense Department.

“The DoD, through its US Army Logistics Civil Augmentation Program (LOGCAP) III contract with KBR, tapped the company in November 2002 to develop the contingency plan. Implementation of the plan is being executed through a separate contract KBR now holds with the US Army Corps of Engineers,” the news release says.

A half-dozen Halliburton employees said that they don’t believe Cheney played any role in the company securing the lucrative contract from the government, but they noted that the Army Corps of Engineers purposely downplayed the company’s role in repairing Iraq’s infrastructure because of Halliburton’s ties to Cheney and the criticism that would likely come from Congressional Democrats who claim the government is playing favorites.

“Halliburton has been working with the United States government since the 1940s,” said one executive who supplied CounterPunch with documents and requested anonymity. “But because Vice President Dick Cheney used to run the firm everyone automatically assumes that he had something to do with the government contracts we now get.”

Since 9-11, Halliburton’s Brown & Root division is the only company that has profited from the so-called war on terror.

Based on its performance providing U.S. troops in the Balkans with housing, food, water, mail, laundry, and heavy equipment (a job for which Halliburton has been paid $3 billion so far), the company won an unprecedented ten-year deal in December 2001 to supply similar logistical support to U.S. military operations around the world.

“The Pentagon’s Logistics Civil Augmentation Program pays Halliburton through what’s called a cost-plus arrangement, meaning that KBR is guaranteed to recover its expenses, plus receive a set profit, provided the contract terms are met. To date, KBR has received $830 million from the program. The company is also helping to run Incirlik Air Base and other U.S. military facilities in Turkey (where an initial contract, set to expire in September, was worth $118 million) and received $65 million to support bases in Afghanistan and Uzbekistan. What’s more, it earned $33 million building cells for suspected al Qaeda members at Guantanamo Bay, Cuba. Overall, Halliburton’s backlog of government revenue expanded 40% in the last three months of 2002 alone,” Business 2.0 reported. .

What is most troubling about the sweet deals Brown & Root has been awarded and what has lawmakers like Congressman Henry Waxman, D-California, up in arms is how the company ripped off the government to the tune of $2 million on several occasions while Cheney was chief executive of Halliburton and the company’s long history of supporting terrorist regimes-including Iraq, Iran and Libya-despite U.S. sanctions on such countries.

Last year, KBR agreed to pay the U.S. government $2 million to settle allegations it defrauded the military while Cheney was chief executive of parent company Halliburton. KBR was accused of inflating contract prices for maintenance and repairs at Fort Ord, a now-shuttered military installation near Monterey, Calif. The lawsuit, filed in Sacramento, alleged KBR submitted false claims and made false statements in connection with 224 delivery orders between April 1994 and September 1998. KBR and Halliburton has also paid out settlements to end investigations and lawsuits on half-a-dozen other occasions.

In 1978, a grand jury indicted KBR on charges that it colluded with a competitor on marine construction work. KBR paid a $1 million fine to settle the charges. In 1995, the U.S. fined Halliburton $3.8 million for violating a ban on exports to Libya. Four years later, a Halliburton subsidiary opens an office in Iran, despite a U.S. ban on doing business in that country. In 2001, Halliburton shareholders lash out at company executives for its pipeline project in Burma, citing that country’s human-rights abuses. Also in 2001, watchdog groups blast Cheney for placing 44 Halliburton subsidiaries in foreign tax havens.

Halliburton’s dealings in six countries – Azerbaijan, Indonesia, Iran, Iraq, Libya and Nigeria – show that the company’s willingness to do business where human rights are not respected is a pattern that goes beyond its involvement in Burma..

So how does the company continue to win such lucrative contracts with the government, as in the case of Iraq, in spite of its shady record?

“KBR was selected for the award based on the fact that KBR is the only contractor that could commence implementing the complex contingency plan on extremely short notice,” Halliburton said in a March news release.

Despite Waxman’s criticism of the government awarding the bulk of the work in Iraq to Halliburton unit Brown & Root, it appears that the company’s role in the country is getting bigger by the second. And plans to open up the bidding to other companies appear to be a dead issue.

On Monday, the Army Corps of Engineers said it awarded Brown & Root another $24 million contract, this time to distribute gasoline and cooking fuel in Iraq.

The Army Corps of Engineers said the delivery order was awarded to Halliburton subsidiary on May 4 as part of the $7 billion umbrella contract awarded to the company in March for fire fighting services in Iraq.

The Army Corps last week said the Halliburton subsidiary had received about $75 million in orders so far, and the total amount would likely reach about $600 million, far less than the worst-case figure of $7 billion estimated before the Iraq war.

Corps spokeswoman Carol Sanders said the new order fell under the broad terms of the original contract and rejected criticism from Waxman, who said Halliburton now appeared to have a more lucrative and direct role in rebuilding Iraq’s oil industry.

She said Iraqi people urgently needed cooking oil and gasoline as they began rebuilding their country. Given the need to boil water to prevent disease, it was not feasible to competitively bid the work.

“We made the contract broad enough so we could handle issues just like this,” she said.

Specifically, Sanders said KBR was bringing supplies of liquefied national gas and gasoline to regional storage centers, where Iraqis were managing its distribution.

KBR spokeswoman Wendy Hall said the latest contract was part of the broader contract, which aimed to maintain “the continuity of operations of the Iraqi oil infrastructure.”

JASON LEOPOLD can be reached at: jasonleopold@hotmail.com

 

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JASON LEOPOLD is the former Los Angeles bureau chief of Dow Jones Newswires where he spent two years covering the energy crisis and the Enron bankruptcy. He just finished writing a book about the crisis, due out in December through Rowman & Littlefield. He can be reached at: jasonleopold@hotmail.com

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