The industry-favoured plan was pushed aside by a secret plan, drafted just before the invasion in 2003, which called for the sell-off of all of Iraq's oil fields. The new plan was crafted by neo-conservatives intent on using Iraq's oil to destroy the Opec cartel through massive increases in production above Opec quotas...
This notion is one of the most durable of the manifold stupidities emerging from the Iraq war. It is, of course, a load of bollocks.
Such a plan was drafted, but it was categorically rejected, both by the oil industry and by the administration. The administration's reason's for rejecting it were of course predominantly political: any plan to privatise Iraqi oil fields would have required the installation and sustenance of a compliant and unelected government, which was entirely incompatible with numerous pronouncements of plans to democratize Iraq. Once the decision was made to hold early elections, any plan to privatise oil fields was irrelevant, since no elected Iraqi government would ever agree to such a plan. Iraqi elections and privatisation of oil fields were, and are, utterly and very obviously incompatible; since the Bush administration did decide to hold elections in Iraq, it had clearly decided not to privatise oil fields.
Even if such a plan had come to fruition, it is highly unlikely that oil companies would have been interested. The pre-war position of the oil industry is a matter of record. It is preserved in a document released in January 2003 by the Council on Foreign Relations and the James Baker Institute for Public Policy, titled "Guiding Principles for U.S. Post-Conflict Policy in Iraq". The Baker Institute is an eminently conservative institution (James Baker was Secretery of the Treasury under Reagan and Secretary of State under Bush I, hardly a liberal resume) with extremely close ties to the oil industry. You can read the entire report here:
cfr.org
but this portion deserves to be excerpted:
There has been a great deal of wishful thinking about Iraqi oil, including a widespread belief that oil revenues will help defray war costs and the expense of rebuilding the Iraqi state and economy. Notwithstanding the value of Iraq’s vast oil reserves, there are severe limits on them both as a source of funding for post-conflict reconstruction efforts and as the key driver of future economic development. Put simply, we do not anticipate a bonanza.
The U.S. approach should be guided by four principles:
• Iraqis maintain control of their own oil sector;
• a significant portion of early proceeds is spent on the rehabilitation of the oil industry;
• there should be a level playing field for all international players to participate in future repair, development, and exploration efforts; and
• any proceeds are fairly shared by all of Iraq’s citizens. If depoliticized, the UN oil-for-food distribution mechanism is a useful starting point for distributing oil revenues throughout the country.
It is important to stress that Iraqis have the capability to manage the future direction of their oil industry. A heavy American hand will only convince them, and the rest of the world, that the operation against Iraq was undertaken for imperialist, rather than disarmament, reasons. It is in America’s interest to discourage such misperceptions. While Iraqi technocrats are likely to be attracted to American technology and assistance, the United States should be prepared that negotiations with future Iraqi representatives on foreign participation will be prolonged and hard-fought. In addition, Iraq’s highly experienced, nationalistic oil executives will be motivated by Iraqi national interests and are unlikely to agree to one-sided terms that transfer effective control of Iraq’s oil reserves to foreigners.
How quickly Iraq’s oil production capacity of between 2.6 and 2.8 million barrels per day (bpd) can be increased depends on several variables, such as the political environment that develops after the war and the price of oil. U.S. policy should be informed by a realistic assessment of how Iraq will attract the estimated $30 billion to $40 billion in new investment it needs to rehabilitate active wells and to develop new fields. Iraq’s oil industry is unlikely to be able to immediately deliver recovery in oil production and, depending on damage sustained during hostilities, may find its ability to export oil reduced. It is in dire straits with existing production levels declining at a rate of 100,000 bpd annually. Significant technical challenges exist to stanching the decline and eventually increasing production. Returning to Iraq’s pre-1990 levels of 3.5 million bpd will require massive repairs and reconstruction of major export facilities, costing several billions of dollars and taking months, if not years. Service contractors are likely to secure most initial oil-sector contracts. The best-case projections of 6 million bpd will take several years to achieve and depend on a multitude of factors, including ongoing international oil-market conditions.
In short, anyone who was paying attention - and you can bet that the oil majors were paying very close attention indeed - knew that there was not going to be any great short or even medium term profit to be made from Iraqi oil, and there was certainly not going to be enough to pose any challenge to OPEC in anything but the long term.
I emphasized the "$30 to $40 billion" figure because it underscores a critical point about Iraqi oil. The great question surrounding the postwar Iraqi oil industry is NOT "who gets to profit from Iraqi oil" but "who gets to pony up the billions of dollars that have to be spent before ANYBODY profits from Iraqi oil".
$30 to $40 billion is a lot of money, and no company on earth is going to invest that kind of cash without some assurance that it will be able to recover the investment. That, in the case of Iraq, would mean an assurance of political stability and policy continuity for at least a decade. That was an assurance that nobody could give, and the oil companies certainly knew it: they have political analysts that are at least as good as those at the State Dept, and unlike the State Dept, they listen to them. It is very doubtful that oil companies would have taken Iraqi oil fields even if they were being given away, for simple business reasons: required investment too high, recovery horizon too long, political risk level off the charts. Bad business all around. Of course the US government wanted the oil majors to invest, because if they didn't, the Iraqi government would have to do it, which meant that the US government would end up coughing up the cash (the Iraqi government has neither money to spend nor viable credit anywhere but Washington). That was never likely, though: the oil companies may be close with the Bushies, but not close enough to pour that kind of cash into such an inherently shaky venture.
The notion that oil companies want to "own" oil resources outside the US is in any event a relic of the 1970s. Oil company business models have evolved way beyond that. Oil multinationals don't "own" oil in Saudi Arabia, Kuwait, Qatar, Abu Dhabi, etc... they make their money through production contracts and joint ventures with national oil companies and by buying oil from national oil companies and reselling it. Ownership or direct physical control entails unacceptable political risk and is, for oil companies, obsolete: they have settled quite nicely into a very profitable model that does not require such risks.
The notion of an adversary relationship between OPEC and big oil companies is equally risible, and has been for many years. These guys are in the same boat with entirely similar interests, and they know it well: there's a whole lot of mutual back-scratching going on there. The last thing the oil industry wants to do is to destroy OPEC.
A few fringe neocon nutters in ivory tower think tanks had notions about privatising Iraqi oil and challenging OPEC, and they did draw up plans. That's what fringe nutters in ivory tower think tanks do. The plans were circulated, reviewed, and filed in the round file. I've seen no evidence to suggest that they were ever taken seriously, either by the administration or by the oil industry. |
