Post Gulf War II, A Continuing Struggle For Iraq’s Oil

Al Hanners is a retired oil geologist who worked worldwide for a major U.S. oil company for nearly four decades, and who was a Middle East geologist for that company in the early 1970s.

The roots of Iraq’s buildup of weapons of mass destruction and aggression go back to 1972 when Iraq repudiated oil contracts held by a consortium of foreign companies held by U.S., British, French, and Dutch interests, and nationalized Iraqi oil. An acrimonious debate took place. The following quotation is from a 2002 article by Tom Cholmondeley in The Guardian of London.

“Iraq’s Vice-President, Salih Mahdi Ammash, said Iraq would ‘go through any battle with the companies that was necessary’ and resort to “all means necessary.” The companies would also “lose Saudi Arabian and Kuwaiti oil, because if their Arab brethren did not stand by Iraq, they would use force to stop this oil flow.”

Nearly two decades later, Iraq invaded Kuwait and was forced out by the United States and its United Nations allies during the Gulf War.

As I wrote this, war with Iraq seemed imminent. U.S. military forces are in place, the Hajj, the annual Muslim pilgrimage to Mecca, will be over before this week ends, and nights with a dark moon starting on March 3 already are marked on my calendar. Moreover, the war should be over before temperatures of 100 degrees Fahrenheit or more begin.

But that was written before Hans Blix, Chief U.N. Weapons Inspector, went straight down the middle in his address to the U.N. on Feb. 14, 2003. Now the struggle for oil in Iraq continues with an unknown outcome.

While oil is a very important issue and the focus of this article, here is a disclaimer. Oil is not the only issue.

The narrative that follows traces steps to control oil production and oil prices over the years, controls that seem to have left us and some former allies vulnerable to being split by Saddam Hussein on enforcement of U.N. sanctions on Iraq. It also has a bearing on who will get Iraq’s oil should a second Gulf War actually be fought and won.

In a sense, oil has been like water in bathtubs. It is there, and how fast it is removed depends on incentives to empty them. Getting the last drop needs special techniques. With oil, the incentive is profit, and that requires preventing some huge tubs from flooding the market and driving oil prices too low. The biggest oil market always has been the United States. In the early to mid- 1900s, the biggest tubs were in Texas. The Texas Railroad Commission controlled oil prices in Texas, our federal government winked at antitrust laws, and hence, it determined oil prices in the United States.

Changes began after World War II. Huge oil fields began to be developed in the Middle East. Oil production in the United States dropped, and by 1967, United States could no longer supply its own needs. Now we must import well over one-half of our oil consumption. With these changes, control of oil production and prices shifted from Texas to the Middle East. Consortiums of companies having oil contracts with Middle East countries, and with mutual interests in not flooding the world oil market, were formed. They were largely successful in maintaining oil production at highly profitable levels.

Abrogation of contracts and nationalization of oil rights by foreign oil exporting countries began about 1970 and shook up the oil business. Venezuela was one of the leaders; important Middle East countries were Iraq and Saudi Arabia, all undeveloped countries with an appetite for more income. Some Middle East consortiums, like the Iraq Petroleum Company, went out of business; others, like Aramco in Saudi Arabia, stayed on as contractors.

In any case, some oil exporting countries, anxious to enjoy their newly found wealth, tended to flood the oil market. As a result OPEC, an organization of oil exporting countries, was formed to set oil quotas for individual member countries. Cheating on production quotas has been common, but circumstantial evidence indicates that Saudi Arabia has had a stabilizing influence. When cheating countries seriously exceeded their quotas, Saudi Arabia threatened to flood the oil market to punish them.

Saudi Arabia is unique. It has the largest oil reserve and the greatest present and potential oil production rate of any country in the world. Aramco, the operating company, is exclusively owned by American oil companies. There is a symbiotic relationship: Saudi Arabia protects their oil interests, and the United States protects Saudi Arabia and the royal family. However, that symbiotic relationship is imperfect and has a price. There is reliable evidence that the Saudi Arabia royal family funds terrorists.

Everywhere one looks, the twenty-first century world economy runs on cheap energy from oil and natural gas from servers that make the Internet possible, and even to the food we eat. Increased yields of crops in recent decades are largely attributable to increased use of artificial fertilizers. Some 40 percent of the nitrogen in our bodies is said to be from chemical fertilizers made by using natural gas as the energy source to extract nitrogen from the atmosphere.

Oil and natural gas are finite, non-renewable energy sources, and reserves and production rates are seriously declining in many areas outside the Middle East. Countries are scrambling to obtain sources of foreign oil, and more and more, that must be from the Middle East. Reports of the Arctic National Wildlife Refuge and Russian oil potentials probably are over-blown.

In the near and distant future, we can expect OPEC, or its successor, to try to maintain high oil prices to the consternation of oil importing companies. How high oil prices are maintained is likely to depend on who controls Iraq’s oil, and pressure the U.S. puts on Saudi Arabia.

One-tenth or more of world oil reserves are in Iraq, so there is a great incentive to own that oil. No doubt, if invaded, Saddam Hussein will set fire to many of the Iraqi oil wells. Fire is usually put out with water, but the wells are in a desert, so extinguishing the fires will be difficult. Still, by five years after the war, Iraq could possibly be producing six to eight million barrels of oil per day that perhaps would be worth $90 billion per year.

Oil is Iraq’s overwhelming asset. Only by use of that oil to benefit the Iraqi people can a stable democratic government be established and persist. Colin Powell said, “The one thing I can assure you is that the (Iraqi) oil will be held in trust for the Iraqi people, to benefit the Iraqi people.”

How can that be accomplished? For starters, possession is nine points of the law. At the wars’ end, U.S. General Tommy Franks, who reports to George W. Bush, would have authority to hold the Iraqi oil in trust until a provisional (puppet?) government is set up.

We can hope that the Iraqi people would profit, but what benefits the Iraqi people is subject to interpretation. A great deal of money will have to be spent to put out fires and restoring Iraqi oil production, money that Iraq does not have. Doubtless, investment by foreign oil companies who will share in the profits, will be considered to be in Iraq’s best interest.

Saddam Hussein’s policy appears to be to divide and survive, and his policy on oil separates competing countries into two camps. Leading players on one side are the United States and the British, and on the other side French, Russians, and Chinese. Significantly, all those countries have veto power in the United Nations.

Nationalization of Iraqi oil in 1972 seems to have placed the U.S. and Great Britain on one side. American and British companies had a 75 percent interest in the Iraq petroleum company, and after the war they will seek redress in court, pleading that they lost their interests under duress when Iraq nationalized its oil. Perhaps that is the reason that George W. Bush and Tony Blair alone urgently press for a quick strike at Iraq without U.N. support if necessary.

On the other hand, the French company had only a minority interest in the now defunct Iraq Petroleum Co. By awarding the French current lucrative oil contracts, Saddam Hussein placed France on the other side. By also granting the Russians and Chinese current lucrative oil contracts, Saddam Hussein presumably placed them in the French camp to influence vetoes of U.S. resolutions to enforce sanctions on Saddam Hussein. These contracts may not survive a regime change.

Note that the French camp has delayed America’s new U.N. resolution to enforce sanctions on Iraq and proposed to send U.N. peacekeepers into Iraq at a time when the United States and its allies would invade Iraq.

As this is written, Iraq is resisting the U.N. weapons inspectors insistence that Iraq destroy engines for propelling rockets beyond the range allowed by U.N. sanctions. Where did Iraq get the money to buy those engines?

From the oil or food program while starving its own people. Who made that travesty of justice possible?

How all this will play out, we can only wait to see. But as Cholmodeley said, “should there be a regime change, one thing is guaranteed–shortly afterward there will be the mother of all legal battles.” §

Editor’s Note: Whatcom Watch supports the peaceful resolution of problems.

Bellingham Peace Community: http://bellinghampeace.org

Cascades Center for Peace, Justice and the Environment: http://www.epilogicconsulting.come/cascadiac.

Not in Our Name, Bellingham: http://www.wakeup.to/notinourname.

Whatcom Peace and Justice Center: 734-0217 :http://bellinghampeace.org/peacecenter.

WWU Peace Resource Center: http://www.as.wwu.edu/programs/prc/prc.html.