Retired Senior Foreign Service Officer of the US Department of State offers educated insight into the real purpose of the 2001 energy task force.
Open Access Article Originally Published: April 12, 2007
Reports from Baghdad indicate that the US-backed Iraqi cabinet has finalized a new oil law that would (a) turn the development of 2/3rds of Iraqi oil reserves over to foreign firms, (b) give multinationals 1520 year contracts, and (c) exempt foreign firms from the application of Iraqi law. Reportedly a committee of three Shi'a and Kurdish cabinet members, plus representatives of 9 foreign energy companies, British and US government officials, and a representative of the International Monetary Fund developed the new law. The new oil law, construction of the gigantic US Embassy in Baghdad, and development of at least four US military bases in Iraq portend a fundamentally altered US posture in the Middle East and Central Asian regions.
New law an echo of the past
As an Iraqi matter, adoption of the new oil law must be a black day for Adnan Pachachi who is apparently the only surviving member of the original Middle East country group of officials who formed OPEC, the Organization of Petroleum Exporting Countries, in 1960. He is watching a plan abruptly to return Iraq to the good old days of foreign oil company operators who viewed themselves virtually as independent governments. Under those rules, the multinationals controlled exploration, drilling, production, shipping, and marketing/pricing of the region's oil, and the five OPEC founders--Iraqis, Iranians, Saudis, Kuwaitis, or Venezuelans, as the companies saw matters, only got in the way. The way the Iraq situation unfolds is sure to be viewed with vital interest by OPEC members and all energy sources, especially Russia, other Caspian region and the Central Asian ones who-on their own--are just getting deeply into the Western energy game.
The British and American oil companies involved might well regard this new Iraqi law as payback for the fact that the Iraqis nationalized the oil industry in 1971 and took it away from the foreign operators. That would be truly a sour grapes attitude, however, because the oil companies never paid the Iraqis for their concessions in the first place. The colonial operators worked that out without consulting the Iraqis. That is one reason why what is going on now sounds so familiar. Once again the Iraqis have been handed a petroleum regime that they had minimal part in crafting. In the present case, the Iraqis surely will raise cane if their payments are not equal to the share they would enjoy in OPEC. Prices recently have averaged $60-65 per barrel, and OPEC member shares (profits, costs, and taxes) tend to run more than half the market price for a given crude oil.
Acing out the competition
The US and British companies reportedly were anxious to see that the contracts Saddam Hussein had entered into with the French, Russians and Chinese before the 2003 invasion of Iraq would never be implemented, or, if implemented, would be scaled back materially to accommodate the plans of American and British majors. Other small players who have entered the field, such as the Canadian Heritage group and the Norwegians, probably won't affect major operations.
Since the now defunct government of Saddam Hussein entered into those earlier contracts, the new Iraqi government, qua the new law development group, conceivably could claim that those contracts are now null and void. Whether those contracts ever enter into play, therefore, could depend on the amount of diplomatic noise that erupts among the oil-seeking players. That discussion is unlikely to involve the Iraqis except possibly to learn to live with the resultant deals.
It is not known where the American and British majors and possibly the French, Chinese, and Russian, players will start to exploit their reported 2/3rds of Iraqi oil resources. However, a good map of oil occurrences shows that many possibilities lie along the Iraq/Iran border and under the Shatt al Arab (that politically prickly 120 mile long stretch of the Tigris/Euphrates river that flows to the Persian Gulf), as well as in productive zones that may impinge on/arouse Kuwaiti and Syrian interests.
Why is the IMF involved?
As a side note, the involvement of the International Monetary Fund may sound like an odd wrinkle in the procedure, but it is actually quite sensible, albeit mostly supportive of outside interests. The IMF and the World Bank both take an interest in such laws and related agreements because they bear materially on the ability of governments such as Iraq to meet contract obligations, especially loans and guarantees extended to companies that undertake and finance oilfield, pipeline, refinery, and other industry infrastructure development.
What about that colossal new Embassy?
Coping with such political sensitivities commends a strong and readily available diplomatic support mission as well as some military clout. Those potential needs account for the fact that the US is now building the largest Embassy it will have anywhere in the world in Baghdad. Meanwhile, the Pentagon is busy fleshing out at least four major US military bases in Iraq.
Both processes started from the first day after the March 2003 invasion. Virtually on arrival US administrator L. Paul Bremer began work on long-term arrangements for the US to stay in Iraq. He imposed constitution-like decisions on the Iraqis, even dictating what kind of seeds Iraqi farmers should plant. Among those laws was the reservation of Iraq's as yet undeveloped oil resources (said to be larger than those already in production) for foreign private exploitation. The Pentagon started immediately on military bases, and was busily paving over much of the site of ancient Babylon until archaeologists objected.
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Reader Comments
6 comments so far...
15-Apr-2007
55821
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At one of the spectrum we have corrupt American and British politicians willing to do whatever is necessary
to ensure a monopoly on cheap oil even if it
entails killing tens of thousands. On the other
end we have scientists telling us we must stop
this use of buried hydrocarbons or we will
destroy our enviornment. It remains to be seen
which group will prevail.
Posted by: John Boyd
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13-Apr-2007
55801
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That the Iraq war wasn't about saving the people or WMD isn't speculation, its just plain obvious. If you think an imminent liquid fuel shortage justifies such a colossal tragedy why do you care about the free market anyway? The US certainly didn't!
Posted by: marcus H
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15-Apr-2007
55819
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What we're doing in Iraq is no more "free market" than when the Third Reich went looking for leibensraum. It is, however, capitalism, in the same spirit as the slaughter Britain carried out in India when its people rose against the injustices of the British East India Company, a private corporation, or the slaughter Britain carried out in China when its government dared to ban the opium that this same company so profitably sold there, or the slaughter Cecil Rhodes carried out as a private venture in his conquest of "Rhodesia", or the siccing of the US Army on the evil socialistic redskins at the behest of settler voters and big railroads. With or without a government to use as a stooge, the rich will always desire to raise armies to enslave those whom they can profitably enslave. If Mr. Kopeck believes that you will be put in a Halliburton labor camp one week before he will, then he will support it on the grounds that at least the "free market" proved he deserved to hold onto his goodies longer than you. That's all that ever goes thru the heads of the pigs who vote for empire.
Posted by: super 390
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13-Apr-2007
55704
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"educated insight"? It reads more like politically-tainted speculation. The last paragraph is the reveal here: critical of the free market and espousing some kind of global management of resources, sharing the "marginal consequences of scarcity, and the costs of adjustment". Sounds like oil-managed-by-the-UN. No thanks. We've already seen how efficient the U.N. was at managing oil contracts.
Whether you subscribe to "Peak Oil" or not, it's plain to see that all the industrialized nations are working to secure their future energy supplies. Perhaps the author hasn't been keeping up with Russia's and China's recent adventures.
Posted by: Don Kopeck
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111489
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