[Peace-discuss] Must Read - Exclusive to Harper's Magazine

[Chuck Minne]

OPEC AND THE ECONOMIC CONQUEST OF IRAQ 
Why Iraq Still sells its oil à la cartel 
Twilight of the neocon gods

Exclusive to Harper's Magazine
Monday, October 24, 2005
By Greg Palast

Note:  This Saturday, October 22, Greg Palast and his co-author, the Rev. Jesse 
Jackson, received a Project Censored award, the "alternative Pulitzer Prize," for their 
report, JIM CROW RETURNS TO THE VOTING BOOTH: DOES AMERICA HAVE AN APARTHEID 
VOTE-COUNTING SYSTEM?

The Palast investigative team received a second award for uncovering the State 
Department's confidential pre-war plans for the economic conquest of Iraq.

By special arrangement with Harper's magazine, we are reproducing here for the first 
time the entire updated article on the US government's secret schemes for seizing 
control of the oil fields of Iraq....


TWO AND A HALF YEARS AND $202 BILLION into the war in Iraq, the United States has at 
least one significant new asset to show for it: effective membership, through our 
control of Iraq's energy policy, in the Organization of the Petroleum Exporting 
Countries (OPEC), the Arab-dominated oil cartel.


Just what to do with this proxy power has been, almost since President Bush's first 
inaugural, the cause of a pitched battle between neoconservatives at the Pentagon, 
on the one hand, and the State Department and the oil industry, on the other. At 
issue is whether Iraq will remain a member in good standing of OPEC, upholding 
production limits and thereby high prices, or a mutinous spoiler that could topple the Arab 
oligopoly.


According to insiders and to documents obtained from the State Department, the 
neocons, once in command, are now in full retreat. Iraq's system of oil production, after 
a year of failed free-market experimentation, is being re-created almost entirely on 
the lines originally laid out by Saddam Hussein. 


Under the quiet direction of U.S. oil company executives working with the State 
Department, the Iraqis have discarded the neocon vision of a laissez faire, privatized 
oil operation in favor of one shackled to quotas set by OPEC, which have been key to 
the 148% rise in oil prices since the beginning of 2002. This rise is estimated to 
have cost the U.S. economy 1.5% of its GDP, or a third of its total growth during the 
period.


Given this economic blow, and given that OPEC states account for 46% of America's 
oil imports, it may seem odd that the United States' "remaking" of Iraq would allow 
for a national oil company that props up OPEC's price gouging. And in fact the 
original scheme for reconstruction, at least the one favored by neoconservatives, was to 
privatize Iraq's oil entirely and thereby undermine the oil cartel. One intellectual 
godfather of this strategy was Ariel Cohen of the Heritage Foundation, who in 
September 2002 published (with Gerald P. O'Driscoll, Jr.) a post-invasion plan, "The Road 
to Economic Prosperity for a Post-Saddam Iraq," that put forward the idea of using 
Iraq to smash OPEC. Cohen explained to me how such an extraordinary geopolitical feat 
might be accomplished. OPEC maintains high oil prices by suppressing production 
through a quota system effectively imposed on each member by Saudi Arabia, which reigns 
by dint of its overwhelming reserves. The Saudis, to maintain their control on 
pricing, must keep a lid on production from other members-particularly Iraq, which has 
the second greatest proven reserves.


Under Saddam Hussein, Iraq adhered to the OPEC quota limit (historically set to 
equal Iran's, now 3.96 million barrels a day) via state ownership of all fields. Cohen 
reasoned that if Iraq's fields were broken up and sold off, a dozen competing 
operators would quickly crank up production from their individual patches to the maximum 
possible, swiftly raising Iraq's total output to 6 million barrels a day. This extra 
crude would flood world petroleum markets, OPEC would devolve into mass cheating and 
overproduction, oil prices would fall over a cliff, and Saudi Arabia-both 
economically and politically - would fall to its knees.


By February 2003, Cohen's position had been enshrined as official policy, in the 
form of a hundred-page blueprint for the occupied nation titled, "Moving the Iraqi 
Economy from Recovery to Sustainable Growth"-a plan that generally embodied the 
principles for postwar Iraq favored by Defense Secretary Donald Rumsfeld, Deputy Secretary 
Paul Wolfowitz, and the Iran-Contra figure Elliott Abrams, now Deputy National 
Security Adviser. Nominally written by a committee of Defense, State, and Treasury 
officials, the blueprint was in fact the brainchild of a platoon of corporate lobbyists, 
chief among them the flattax fanatic Grover Norquist. From overhauling tax rates to 
rewriting copyright law, the document mapped out a radical makeover of Iraq as a 
free-market Xanadu-a sort of Chile on the Tigris-including, on page 73, the sell-off of 
the nation's crown jewels: "privatization... [of] the oil and supporting industries."


Following the U.S. military's swift advance to Baghdad, those skeptical of the 
neocon plan were summarily brushed aside. Chief among the castoffs was General Jay 
Garner, the shortlived occupation viceroy who on the very night he arrived in Baghdad from 
Kuwait received a call from Rumsfeld informing him of his dismissal. When I met with 
Garner last March at the Washington offices of L3 Corporation's giant security 
subsidiary he now heads, the general told me that he had resisted imposing on Iraqis the 
plan's sell-off of assets, especially the oil. "That's just one fight you don't have 
to take on right now," he said. "You don't want to end the day with more enemies 
than you started with."


In plotting the destruction of OPEC, the neocons failed to predict the virulent 
resistance of insurgent forces: the U.S. oil industry itself. From the outset of the 
planning for war, U.S. oil executives had thrown in their lot with the pragmatists at 
the State Department and the National Security Council. Within weeks of the first 
inaugural, prominent Iraqi expatriates-many with ties to U.S. industry-were invited to 
secret discussions directed by Pamela Quanrud, an NSC economics expert now employed 
at State. "It quickly became an oil group," one participant, Falah Aljibury, told 
me. Aljibury, an adviser to Amerada Hess's oil trading arm and to investment banking 
giant Goldman Sachs, who once served as a back channel between the United States and 
Iraq during the Reagan and George H. W. Bush administrations, cut ties to the 
Hussein regime following the invasion of Kuwait.


The working group's ideas about the war had been far less starry-eyed than those of 
the neocons. "The petroleum industry, the chemical industry, the banking 
industry-they'd hoped that Iraq would go for a revolution like in the past and government was 
shut down for two or three days," Aljibury told me. "You have a martial law . . . and 
say Iraq is being liberated and everybody stay where they are . . . Everything as 
is." On this plan, Hussein would simply have been replaced by some former Baathist 
general. One candidate was General Nizar Khazraji, Saddam's former army chief of staff, 
who at the time was under house arrest in Denmark pending charges for war crimes. 
(Khazraji was seen in Iraq a month after the U.S. invasion, but he soon disappeared 
and has not been heard from since.)


Roughly six months before the invasion, the Bush Administration designated Philip 
Carroll to advise the Iraqi Oil Ministry once U.S. tanks entered Baghdad. Carroll had 
been CEO of both Fluor Corporation, now a major contractor in Iraq, and, earlier, of 
Royal Dutch/Shell's U.S. division. In May 2003, a month after his arrival in Iraq, 
Carroll made headlines when he told the Washington Post that Iraq might break with 
OPEC: "[Iraqis] have from time to time, because of compelling national interest, 
elected to opt out of the quota system and pursue their own path. . . . They may elect to 
do that same thing. To me, it's a very important national question." Carroll later 
told me, though, that he personally would not have been supportive of privatizing oil 
fields. "Nobody in their right mind would have thought of doing that," he said.


Soon after Carroll resigned his post in September 2003, the new provisional 
government appointed an oil minister, Ibrahim Bahr al-Uloum. Uloum (who had been maneuvered 
into the job by then-neocon favorite Ahmad Chalabi) quickly fired Muhammad 
al-Jiburi, chief of Iraq's State Oil Marketing Organization, and Thamer Ghadhban, the expert 
in charge of the southern oil fields, both of whom had been trusted by the Western 
oil industry. Production faltered from a combination of incompetence, wholesale theft 
(Iraq's oil was unmetered), sabotage, and corruption that one oilman told me was 
"rampant," with "direct payoffs to government officials by commercial operators."


With pipelines exploding daily, the fantasy of remaking Iraq's oil industry also 
went up in flames. Carroll was replaced by another Houston oil chieftain, Rob McKee, a 
former executive vice-president of ConocoPhillips and currently the chairman-even 
during his tenure in Baghdad-of Enventure, an oil-drilling supply subsidiary of the 
Halliburton Corporation. McKee had little tolerance for the neocons' threat to 
privatize the oil fields. A close associate of McKee's and the executive adviser to Hess's 
trading arm, Ed Morse, told me that "Rob was very promotive of putting in place a 
really strong national oil company," even if he had to act over the objections of the 
Iraqi Governing Council. Morse, who says he takes as many as six calls a day from 
the Bush Administration regarding Iraq, is one of the men to whom Washington turns to 
obtain the views of Big Oil. Like Carroll and McKee, Morse sneers at what he calls 
"the obsession of neo-conservative writers on ways to undermine OPEC." Iraqis, says 
Morse, know that if they pump 6 million barrels a day, i.e., 2 million above their 
expected OPEC quota, "they will crash the oil market" and bring down their own 
economy.


In November 2003, McKee quietly ordered up a new plan for Iraq's oil. The drafting 
would be overseen by a "senior adviser," Amy Jaffe, who had worked for Morse when he 
held the formidable title of Chairman of the Council on Foreign Relations-James 
Baker III Institute Joint Committee on Petroleum Security. Jaffe now works for Baker, 
the former Secretary of State, whose law firm serves as counsel to both ExxonMobil and 
the defense minister of Saudi Arabia. The plan, nominally written by State 
Department contractor BearingPoint, was guided, says Jaffe, by a handful of oil industry 
consultants and executives.

For months, the State Department officially denied the existence of this 323-page 
plan for Iraq's oil, but when I identified the document's title from my sources and 
threatened legal action, I was able to obtain the complete report, dated December 2003 
and entitled "Options for Developing a Long Term Sustainable Iraqi Oil Industry." 
The multi-volume document describes seven possible models of oil production for Iraq, 
each one merely a different flavor of a single option: the creation of a state-owned 
oil company. The seven options ranged from the Saudi Aramco model, in which the 
government owns the whole operation from reserves to pipelines, to the Azerbaijan model, 
in which the state-owned assets are operated almost entirely by "IOCs" 
(International Oil Companies). The drafters had little regard for the "self-financing" system, 
such as Saudi Arabia's, which bars IOCs from the fields; they prefer the 
production-sharing agreement (PSA) model, under which the state maintains official title to the 
reserves but operation and control are given to foreign oil companies. These 
companies then manage, fund, and equip crude extraction in exchange for a percentage of 
sales receipts.


While promoting IOC control of the fields, the authors take care to warn the Iraqi 
government against attempting to squeeze IOC profits: "Countries that do not offer 
risk-adjusted rates of return equal to or above other nations will be unlikely to 
achieve significant levels of investment, regardless of the richness of their geology." 
Indeed, to outbid other nations for Big Oil's favor will require Iraq to turn over 
quite a large share of profits, especially when competing against countries such as 
Azerbaijan that have given away the store. The Azeri government, notes the report, 
has "been able to partially overcome their risk profile and attract billions of 
dollars of investment by offering a contractual balance of commercial interests within the 
risk contract." This refers to the fact that Azerbaijan, despite its poor oil 
quality and poor location, drew in the IOCs via scandalous splits of revenue allowed by 
the nation's corrupt government.


Given how easily the interests of OPEC and those of the IOCs can be aligned, it is 
certainly understandable why smashing the oil cartel would not strike oilmen as a 
good idea. In 2004, with oil approaching the $50-a-barrel mark all year, the major U.S. 
oil companies posted record or near record profits. ConocoPhillips, Rob McKee's 
company, this February reported a doubling of its quarterly profits from the previous 
year, which itself had been a company record; Carroll's former employer, Shell, posted 
a record-breaking $4.48 billion in fourth-quarter earnings. ExxonMobil last year 
reported the largest one-year operating profit of any corporation in U.S. history.


When I talked to Ariel Cohen at Heritage, his dream of smashing OPEC in shambles, he 
blamed the State Department for acquiescing to the Saudis and to Russia, which also 
benefit s from selling oil at high OPEC prices. The poisonous policies were 
influenced, he said, by "Arab economists hired by the State Department who are basically 
supporting the witches' brew of the Saudi royal family and the Soviet ostblock . . . 
because the Saudis are interested in maximizing their market share and they're not 
interested in fast growth of the Iraqi output."


According to Morse, the switch to an OPEC-friendly policy for Iraq was driven by 
Dick Cheney himself. "The person who is most influential in running American energy 
policy is the Vice President," who, says Morse, "thinks that security begins by . . . 
letting prices follow wherever they may."


Even, I asked, if those are artificially high prices, set by OPEC? "The VP's office 
[has] not pursued a policy in Iraq that would lead to a rapid opening of the Iraqi 
energy sector . . . so they have not done anything, either with producers or energy 
policy, that would put us on a track to say, 'We're going to put a squeeze on OPEC.'"


Opposition to OPEC was handled in a style that would have made Saddam proud. On May 
20, 2004, Iraqi police raided Ahmad Chalabi's home in Baghdad and carted away his 
computers and files. Chalabi was hunted by his own government: the charge was 
espionage, no less, for Iran. Chalabi's Governing Council was soon shut down and, crucially, 
Bahr al-Uloum was yanked from the Oil Ministry and replaced by the very men he had 
removed: Thamer Ghadhban, who took al-Uloum's job at the oil ministry and Chalabi 
rival Muhammad al-Jiburi who was made minister of trade.


But just when you thought the fat lady sang for the neo-cons, who should rise from 
his crypt eight months later but Ahmad Chalabi. In January 2005, Chalabi cut a deal 
with his former oil minister's father, a Shia power broker, and rode that religious 
ethnic vote back into office. Chalabi landed himself the post of Second Deputy Prime 
Minister and, in addition, the tantalizing title of interim oil minister. The 
espionage investigation was dropped; the King of Jordan offered to pardon Chalabi for the 
$72 million missing from Chalabi's former bank; and Chalabi once again turned over 
his oil ministry to Sheik al-Uloum's son. The Texans' OPEC man Ghadhban, was again 
kicked downstairs.


But Chalabi had learned his lesson: don't mess with Texas, or the Texan's favorite 
cartel. A chastened Chalabi now endorses Iraq's cooperation with OPEC's fleecing of 
the planet's oil consumers.


And Dick Cheney, far from "putting the squeeze on OPEC," has taken his de facto seat 
there, assenting by silence to the oil monopoly's piratical price gouging. But 
hasn't OPEC's stratospheric crude prices choked the life out of America's auto industry 
and bankrupted half a dozen airlines? In the Vice-President's bunker the elimination 
of jobs of Democratic-leaning union members is likely seen as a bonus for the good 
deed of boosting oil industry profits far above the ozone layer.


**********
Greg Palast is the author of the New York Times bestseller, The Best Democracy Money 
Can Buy. This is his fourth investigative report for Harper's Magazine. Leni von 
Eckardt was chief researcher with Palast on this project. This is the Palast team's 
fifth Project Censored award from California State University's school of journalism. 

The BBC Television Newsnight broadcast of this story was produced by Meirion Jones. 
View the BBC report and sign up for Palast's investigation updates at 
www.GregPalast.com



Government is the Entertainment Division of the military-industrial complex.
[Frank Zappa]   
 

  








		
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