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Keeping Iraq's Oil in the Ground
By Greg Palast
AlterNet
Wednesday 14 June 2006
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.
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This article is excerpted from Greg Palast's new book, Armed
Madhouse (Dutton Adult, 2006).
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