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.
http://www.counterpunch.org/rai02032003.html
