Even during the run-up to the War on Iraq it's always been my gut feeling that the game was to keep Iraq's oil off of market. Here's some of the first substantive writing I've seen to date that's right on the mark toward this idea:
Keeping Iraq's Oil In the Ground
By Greg Palast, AlterNet. Posted June 14, 2006.
Did the U.S. invade Iraq to tap its oil reserves or to make sure they stayed under the sand? Tools
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World oil production today stands at more than twice the 15-billion a-year maximum projected by Shell Oil in 1956 -- and reserves are climbing at a faster clip yet. That leaves the question, Why this war?
Did Dick Cheney send us in to seize the last dwindling supplies? Unlikely. Our world's petroleum reserves have doubled in just twenty-five years -- and it is in Shell's and the rest of the industry's interest that this doubling doesn't happen again. The neo-cons were hell-bent on raising Iraq's oil production. Big Oil's interest was in suppressing production, that is, keeping Iraq to its OPEC quota or less. This raises the question, did the petroleum industry, which had a direct, if hidden, hand, in promoting invasion, cheerlead for a takeover of Iraq to prevent overproduction?
It wouldn't be the first time. If oil is what we're looking for, there are, indeed, extra helpings in Iraq. On paper, Iraq, at 112 billion proven barrels, has the second largest reserves in OPEC after Saudi Arabia. That does not make Saudi Arabia happy. Even more important is that Iraq has fewer than three thousand operating wells... compared to one million in Texas.
That makes the Saudis even unhappier. It would take a decade or more, but start drilling in Iraq and its reserves will about double, bringing it within gallons of Saudi Arabia's own gargantuan pool. Should Iraq drill on that scale, the total, when combined with the Saudis', will drown the oil market. That wouldn't make the Texans too happy either. So Fadhil Chalabi's plan for Iraq to pump 12 million barrels a day, a million more than Saudi Arabia, is not, to use Bob Ebel's (Center fro Strategic and International Studies) terminology, "ridiculous" from a raw resource view, it is ridiculous politically. It would never be permitted. An international industry policy of suppressing Iraqi oil production has been in place since 1927. We need again to visit that imp called "history."
It began with a character known as "Mr. 5%"-- Calouste Gulbenkian -- who, in 1925, slicked King Faisal, neophyte ruler of the country recently created by Churchill, into giving Gulbenkian's "Iraq Petroleum Company" (IPC) exclusive rights to all of Iraq's oil. Gulbenkian flipped 95% of his concession to a combine of western oil giants: Anglo-Persian, Royal Dutch Shell, CFP of France, and the Standard Oil trust companies (now ExxonMobil and its "sisters.") The remaining slice Calouste kept for himself -- hence, "Mr. 5%."
The oil majors had a better use for Iraq's oil than drilling it -- not drilling it. The oil bigs had bought Iraq's concession to seal it up and keep it off the market. To please his buyers' wishes, Mr. 5% spread out a big map of the Middle East on the floor of a hotel room in Belgium and drew a thick red line around the gulf oil fields, centered on Iraq. All the oil company executives, gathered in the hotel room, signed their name on the red line -- vowing not to drill, except as a group, within the red-lined zone. No one, therefore, had an incentive to cheat and take red-lined oil. All of Iraq's oil, sequestered by all, was locked in, and all signers would enjoy a lift in worldwide prices. Anglo-Persian Company, now British Petroleum (BP), would pump almost all its oil, reasonably, from Persia (Iran). Later, the Standard Oil combine, renamed the Arabian-American Oil Company (Aramco), would limit almost all its drilling to Saudi Arabia. Anglo-Persian (BP) had begun pulling oil from Kirkuk, Iraq, in 1927 and, in accordance with the Red-Line Agreement, shared its Kirkuk and Basra fields with its IPC group -- and drilled no more.
The following was written three decades ago:
Although its original concession of March 14, 1925, cove- red all of Iraq, the Iraq Petroleum Co., under the owner- ship of BP (23.75%), Shell (23.75%), CFP [of France] (23.75%), Exxon (11.85%), Mobil (11.85%), and [Calouste] Gulbenkian (5.0%), limited its production to fields constituting only one-half of 1 percent of the country's total area. During the Great Depression, the world was awash with oil and greater output from Iraq would simply have driven the price down to even lower levels.
Plus ça change...
When the British Foreign Office fretted that locking up oil would stoke local nationalist anger, BP-IPC agreed privately to pretend to drill lots of wells, but make them absurdly shallow and place them where, wrote a company manager, "there was no danger of striking oil." This systematic suppression of Iraq's production, begun in 1927, has never ceased. In the early 1960s, Iraq's frustration with the British-led oil consortium's failure to pump pushed the nation to cancel the BP-Shell-Exxon concession and seize the oil fields. Britain was ready to strangle Baghdad, but a cooler, wiser man in the White House, John F. Kennedy, told the Brits to back off. President Kennedy refused to call Iraq's seizure an "expropriation" akin to Castro's seizure of U.S.-owned banana plantations. Kennedy's view was that Anglo-American companies had it coming to them because they had refused to honor their legal commitment to drill.
But the freedom Kennedy offered the Iraqis to drill their own oil to the maximum was swiftly taken away from them by their Arab brethren.
The OPEC cartel, controlled by Saudi Arabia, capped Iraq's production at a sum equal to Iran's, though the Iranian reserves are far smaller than Iraq's. The excuse for this quota equality between Iraq and Iran was to prevent war between them. It didn't. To keep Iraq's Ba'athists from complaining about the limits, Saudi Arabia simply bought off the leaders by funding Saddam's war against Iran and giving the dictator $7 billion for his "Islamic bomb" program.
In 1974, a U.S. politician broke the omerta over the suppression of Iraq's oil production. It was during the Arab oil embargo that Senator Edmund Muskie revealed a secret intelligence report of "fantastic" reserves of oil in Iraq undeveloped because U.S. oil companies refused to add pipeline capacity. Muskie, who'd just lost a bid for the Presidency, was dubbed a "loser" and ignored. The Iranian bombing of the Basra fields (1980-88) put a new kink in Iraq's oil production. Iraq's frustration under production limits explodes periodically.
In August 1990, Kuwait's craven siphoning of borderland oil fields jointly owned with Iraq gave Saddam the excuse to take Kuwait's share. Here was Saddam's opportunity to increase Iraq's OPEC quota by taking Kuwait's (most assuredly not approved by the U.S.). Saddam's plan backfired. The Basra oil fields not crippled by Iran were demolished in 1991 by American B-52s. Saddam's petro-military overreach into Kuwait gave the West the authority for a more direct oil suppression method called the "Sanctions" program, later changed to "Oil for Food." Now we get to the real reason for the U.N. embargo on Iraqi oil exports. According to the official U.S. position:
Sanctions were critical to preventing Iraq from acquiring equipment that could be used to reconstitute banned weapons of mass destruction (WMD) programs.
How odd. If cutting Saddam's allowance was the purpose, then sanctions, limiting oil exports, was a very suspect method indeed. The nature of the oil market (a cartel) is such that the elimination of two million barrels a day increased Saddam's revenue. One might conclude that sanctions were less about WMD and more about EPS (earnings per share) of oil sellers.
In other words, there is nothing new under the desert sun. Today's fight over how much of Iraq's oil to produce (or suppress) simply extends into this century the last century's pump-or-control battles. In sum, Big Oil, whether in European or Arab-OPEC dress, has done its damned best to keep Iraq's oil buried deep in the ground to keep prices high in the air. Iraq has 74 known fields and only 15 in production; 526 known "structures" (oil-speak for "pools of oil"), only 125 drilled.
And they won't be drilled, not unless Iraq says, "Mother, may I?" to Saudi Arabia, or, as the James Baker/Council on Foreign Relations paper says, "Saudi Arabia may punish Iraq." And believe me, Iraq wouldn't want that. The decision to expand production has, for now, been kept out of Iraqi's hands by the latest method of suppressing Iraq's oil flow -- the 2003 invasion and resistance to invasion. And it has been darn effective. Iraq's output in 2003, 2004 and 2005 was less than produced under the restrictive Oil-for-Food Program. Whether by design or happenstance, this decline in output has resulted in tripling the profits of the five U.S. oil majors to $89 billion for a single year, 2005, compared to pre-invasion 2002. That suggests an interesting arithmetic equation. Big Oil's profits are up $89 billion a year in the same period the oil industry boosted contributions to Mr. Bush's reelection campaign to roughly $40 million.
That would make our president "Mr. 0.05%."
A History of Oil in Iraq
Suppressing It, Not Pumping It
# 1925-28 "Mr. 5%" sells his monopoly on Iraq's oil to British Petroleum and Exxon, who sign a "Red-Line Agreement" vowing not to compete by drilling independently in Iraq.
# 1948 Red-Line Agreement ended, replaced by oil combines' "dog in the manger" strategy -- taking control of fields, then capping production--drilling shallow holes where "there was no danger of striking oil."
# 1961 OPEC, founded the year before, places quotas on Iraq's exports equal to Iran's, locking in suppression policy.
# 1980-88 Iran-Iraq War. Iran destroys Basra fields. Iraq cannot meet OPEC quota. 1991 Desert Storm. Anglo-American bombings cut production.
# 1991-2003 United Nations Oil embargo (zero legal exports) followed by Oil-for-Food Program limiting Iraqi sales to 2 million barrels a day.
# 2003-? "Insurgents" sabotage Iraq's pipelines and infrastructure.
# 2004 Options for Iraqi OilThe secret plan adopted by U.S. State Department overturns Pentagon proposal to massively in crease oil production. State Department plan, adopted by government of occupied Iraq, limits state oil company to OPEC quotas.
This article is excerpted from Greg Palast's new book, "Armed Madhouse" (Dutton Adult, 2006).
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Holy S#it!
Posted by: owlbear1 on Jun 14, 2006 3:18 AM [Report this comment]
...
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Another piece of the puzzle
Posted by: inanaturallight on Jun 14, 2006 3:59 AM [Report this comment]
Now the part of the 'Iraqi' constitution (yes, our government says it's an Iraqi constitution written entirely by and for them) that says all new Iraqi oil development will be done by the international oil companies makes even more sense. Apparently my estimations of the extent of price gouging by big oil has been severly underestimated!
A 'side benefit' in the eyes of the powers that be is that keeping it in the ground keeps it out of the hands of the Chinese, another thread that seems to connect the dots of US government behavior with respect to world oil supplies and the countries that generate them.
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That's why Bush supporters are idiots
Posted by: paul_revere on Jun 14, 2006 4:20 AM [Report this comment]
There have been many anti-war and anti-Bush American patriots who have known all along that the Invasion of Iraq was all about oil and the control of resources, not to mention the establishment of miltary bases that will ensure that control.
The argument about preventing WMD, liberating Iraq from Sadam, and establishing democracy was, and is, pure bulshit. But it is both shameful and disgusting when I hear people on both sides of the political spectrum deny that oil is part of the equation. Oil always has been and always will be a reason for war.
I had heard of this information weeks ago when it broke on the airwaves at KGO AM 810 in San Francisco. Many of us knew that the war was about oil, but it seemed awfully strange that the US wasn't trying to ramp up production of the Iraqi oilfields. Yes, the oilfields were attacked and some were damaged and disabled. But do you think for one minute that if production of oil by Iraq was the goal, that Bush and Cheney and the oil barons would let those oil fields lag so far behind in production? No way. So now it all makes sense, and I thank Mr. Palast for another journalistic revelation to the world.
For those who read this article, don't be naive. It's oil, and American soldiers and inocent Iraqis have died because of it. Bush supporters -- stop waving the flag, take the ribbons off your truck, stop being morons and start marching on Washington. You've been lied to. You've been robbed. Your children, relatives and spouses have died for nothing but the black gold and the money that lines the pockets of the war profiteers
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» RE: That's why Bush supporters are idiots sickofsleaze Posted by: ladybug1@carrollsweb.com
This explains so much.
Posted by: Samantha Vimes on Jun 14, 2006 4:29 AM [Report this comment]
Good article.
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Iraq war
Posted by: rsaxto on Jun 14, 2006 4:57 AM [Report this comment]
The Iraq war is about who controls the oil supply and especially it is about who gets most of the profits from from the control of oil production. USA soldiers are dying and being grossly injured so that a tiny group of the rich can grab the highest amount of profit out of pumping (or not) the oil out of the ground. It is classic greed writ as large as possible. Death to the Iraqis and to many American soldiers/marines to feed to the max the incredibly sick greed of a few oil barons. It is capitalism controlled by war criminals and financial criminals. It is the finger of greed up democracy's ass.
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dw13
Posted by: daw13 on Jun 14, 2006 6:18 AM [Report this comment]
As the peak oil crisis worsens during the coming decades, who controls access to the undrilled Iraqi oil will be in the driver's seat.
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Of course Palast is totally right again
Posted by: janvdb on Jun 14, 2006 6:23 AM [Report this comment]
Yes, the idea is to push up the price of oil.
The really nice thing about using war and civil unrest to suppress production and push up price is the total uncertainty of it prevents alternatives from developing -- who can say when the a-holes in charge of the war will knock it off, let the price of oil fall and wipe out all the little start-up wind and solar alternatives who had become economically viable due to the higher oil price.
Sabotage, capped production -- high oil price, high oil company profits.
And, to boot, billions to pour down the gullet of Halliburton and too much uncertainty about the outlook to allow for healthy investment in alternative fuels.
He needs impeached for about ten different reasons, and every one of them more important than the trumped-up media circus that hounded Clinton.
Jan VanDenBerg
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t2junior67
Posted by: benu67 on Jun 14, 2006 7:06 AM [Report this comment]
thank you mr. Palast, again. here we are talking about how chimpy invaded Iraq for it's oil. it never occured to me that they wanted to keep it under the sand. it makes so much more sense now, with the rising oil prices on the market. the more i read about big oil and this administration, the more i throw up. the public really needs to wake up from their "me" coccon. God help us all.
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» RE: t2junior67 sickofsleaze Posted by: ladybug1@carrollsweb.com
The UN connection
Posted by: chica on Jun 14, 2006 7:42 AM [Report this comment]
Another excellent article from Palast. The complicity of the UN poses some interesting questions.
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Did I have it wrong
Posted by: solrev on Jun 14, 2006 8:08 AM [Report this comment]
I believed that the terrorists and patriots fighting the US invasion in Iraq threw a monkey wrench into the Cheney plan to control the oil fields. If the goal is to limit oil production, they are probably doing Cheney a favor or at least giving him an excuse to limit production. I think Bush’s rush to Iraq was to explain to the new government that some troop reductions would occur by August. Bush is not cutting and running but he does need some political juice for November and he needs to pacify some Americans. He needs the new government to put a leash on their militias to hold down publicity. This reduction is going to make the Iraqi patriots happy. This will also make the new government leaders aware of the fact, that the only way they can escape the assassination block is to end the US occupation all together. Who will control the oil production in Iraq then? If the new government in need of cash to survive does not adhere to OPEC quotas, who will invade Iraq next? A Middle East Shia – Sunni conflict would give the terrorists exactly what they want. The opportunity to attack oil production, every where in the Middle East and create a worldwide depression. Where are those free market bozos when you need them?
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» RE: Did I have it wrong Posted by: Iconoclast421
» RE: Did I have it wrong Posted by: solrev
» RE: Did I have it wrong Posted by: brunowe
» RE: Did I have it wrong Posted by: LeonDion
One thing's for sure...
Posted by: Mutternich on Jun 14, 2006 8:47 AM [Report this comment]
...Whether the oil under the ground is running short or still plentiful, it's better to have it there than in our air. We've gotta break our dependence on it.
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» RE: One thing's for sure...sickofsleaze Posted by: ladybug1@carrollsweb.com
Palast Is Dead On
Posted by: DennisDalrymple on Jun 14, 2006 8:50 AM [Report this comment]
When one stops to consider that the Bush-Cheney Junta have issues with three out of the four top oil producers in the world (Iraq, Iran and Venzuela), thus driving up the price of oil and most of the rest of the energy upon which we depend, one can only conclude that Greg Palast is correct: It is and has been official U.S. policy to suppress oil production to enrich oil companies. This is also the Enron model used to
drive up the price of electricity in California a few years ago, and we know where that led Kenny-boy.
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Do you remember when?
Posted by: Sojourner on Jun 14, 2006 9:27 AM [Report this comment]
Over the last half century, back to when gasoline was .13/gal, there were many suggestions that gasoline be taxed in order to provide funding for a variety of transportation improvements.
The response always was, Americans would never allow it. Americans cannot afford to pay more for gasoline.
As it now turns out, what was really at stake is that oil barons did not want any of the profit to go to public programs or programs in the national interest.
Americans are more than willing to pay over $3/gal for gasoline, thereby allowing the oil barons to continue to suck up record earnings and profits.
Somehow I suspect that they realize that sooner or later energy resources will be nationalized--it only makes sense. We regulate rivers and coastlines and the quality of our air. But we do not regulate gasoline production? OK; we do. But not to the extent that is in the public and national interest.
The oil barons know that sooner or later we will see that. So all their effort goes to making it later rather than sooner.
Gotta hand it to them. They know how wup us slaves and keep us giving them our money.
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Palast is wrong
Posted by: baugh on Jun 14, 2006 11:08 AM [Report this comment]
It's a good conspiracy theory but it contradicts some other info I've seen.
First, reserves may be up on paper, but part of that comes from unverified increases in OPEC numbers over the past few decades. Second, the discovery of new reserves is not keeping pace with consumption of the old ones. We use something like three barrels of oil for every new barrel discovered. At least one of the big oil companies has admitted as much in public statements.
Add it up and oil production will peak before mid-century (around 2040 according to National Geographic). But -- and this is the part that's important to this discussion -- non-OPEC oil will start to decline by 2016. That means a decade from now OPEC will be in the driver's seat.
So I think a more likely explanation for the invasion was to castrate OPEC. Get Iraq out of the cartel and be in a position to influence how and when its reserves are used. This is the position Paul Robert's took in The End of Oil -- a good read.
We'll never know exactly what great strategic thinking was behind the invasion, but I agree with Greg Palast at least that the oil companies were consulted in the matter and OPEC wasn't supposed to benefit from it.
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» I'm willing to scratch Palast off the list of responsible reporters. Posted by: Sojourner
» RE: Palast is wrong? Posted by: boblippold
» If he's wrong, show us your evidence, otherwise Posted by: pzzp
» Hey guys. Try "Shell and BP: Still Drilling" also on today's AlterNet Posted by: Sojourner
Bush Adminstration
Posted by: bergiecc007 on Jun 14, 2006 12:31 PM [Report this comment]
This just adds more and more evidence that we went to war in Iraq for the wrong reasons. It now is very clear that we hurt Saddam Hussien in the Gulf War but did not hurt him enough to completley control his exportation of Oil and this is also becoming quite clear why the insurgency might actually be a good thing for the big oil companies. This is sick and inhumane and sadly this is how the corporate world operates and there is absolutley no respect for actual human life.
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US econ
Posted by: solrev on Jun 14, 2006 1:10 PM [Report this comment]
Greenspan seemed afraid of what high gas prices and the potential for disruption of oil production in the Middle East would do to our economy. When he testified last week.
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Possible Backfire
Posted by: braxxian on Jun 14, 2006 4:28 PM [Report this comment]
A very interesting article indeed, however one thing strikes me as a little odd. Already the world is screaming about the price of oil and the US president has stated publicly that oil in not the future for America. Indeed the high price of oil has begun to speed up the search for fuel alternatives like never before.
Its true that oil will be with us for many years to come however the massive movement to move away from oil has already begun and will only increase in the next ten years. So things could well backfire on the oil barons if they decide to lock up Iraq’s reserves for to long. The world has already seen that oil is becoming a thing of the past and while it will takes several decades to move to a alternate power oil will in time become worthless.
I'm sure the greedy black hearted bastards are aware of his however, it will be interesting to see how things develop over the next few years.
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