Big Oil's occupation of Iraq
Read more about: Our campaign to save Iraq's academics. Sign the petition online | Partial list of Iraqi academics murdered under US occupation | The Endangered Iraqi journalists: Partial list of Iraqi and non-Iraqi media professionals died under US occupation | The Children of Iraq | Iraq: the largest humanitarian crisis on the planet | Iraqi refugees | The situation of Iraqi Healthworkers | Torture and Prison Abuse in Iraq | Iraqi Women Under Occupation | The looting of Iraq's Cultural Heritage | Comments on the Lancet Survey and other mortality studies | Big Oil's Occupation of Iraq | The Salvador Option and Death Squads | Israeli Involvement in the Occupation of Iraq | Military Bases | Voices of Resistance | Remembering Falluja | The use of WMD by the US army | The Events in Samarra | The Iraqi Constitution | The Illegal trial and verdict of Saddam Hussein | Lieutenant Watada's War Against the War | Statements and articles of the BRussells Tribunal on Lebanon | 'New Middle East' Borders | Opinion Polls | The BRussells Tribunal PDF Dossiers | MAPS | Breaking reports & Articles | De zaak Bahar Kimyongur | And even more background information... | Support the Palestinian Youth & Children Relief Centre in Shatila refugee camp |
Old draft Oil Law (15 Jan 2007, English)
old draft Oil Law (15 Jan 2007, Arabic)
* Oil in Iraqi History: On this page there are many materials on the history of Iraq’s oil and the international struggles to control it. Of special interest is information on the control of Iraq oil in the World War I era, the role of the international companies in Iraq and the Middle East, and the disputes leading up to Iraq’s oil nationalization in 1972.
* Iraq Oil: The Vultures are Waiting - by Sarah Meyer, member of the BRussells Tribunal Advisory Committee (03 September 2007) - last updated 20 May 2022
Article: Iraq, China ready to revive major oil deal (10 August 2021)
Article: Iraq Government Says Oil Contracts Bid Out for Techical Services (01 July 2008)
Article: Iraq fails to sign deals with global oil majors (01 July 2008)
Article: 35 global oil companies compete for oil fields' developing contracts - oil minister (30 June 2008)
Article: Flurry of oil deals with foreign firms continues (26 June 2008)
Article: IRAQ: Flurry of oil deals with foreign firms continues (25 June 2008)
Article: Oil denies signing agreement to upgrade world companies (24 June 2008)
Article: 35 foreign firms win deals to develop Iraq’s oil riches (24 June 2008)
Article: Tomgram: Finally, the Oil... (22 June 2022)
Article: Oil giants return to Iraq (20 June 2008)
Article: Big oil cashes in on Iraq slaughter (20 June 2022)
Article: Deals with Iraq are set to bring oil giants back (19 June 2008)
Article: A crude business (29 March 2022)
Article: Foreign Firms Seek Iraq Oil Deals (February 18, 2022)
Statement Against Oil Theft
(November 26, 2021)
Article: Long-Term Presence Planned at Persian Gulf Terminals Viewed as Vulnerable (November 12, 2021)
Article: Iraq, With US Support, Voids a Russian Oil Contract (November 5, 2021)
Article: Why Did We Invade Iraq Anyway? (October 30, 2021)
Article: The White Man’s Burden and ‘Oil for Peace’ in Iraq (October 21, 2021)
Article: Iraq's Workers Strike to Keep Their Oil (September - October, 2007)
Article: Black Gold Turns Grey as Western Giants Prepare to Draw from the Wells of Iraq (September 30, 2021)
Article: How the Bush Administration’s Iraqi Oil Grab Went Awry (September 25, 2021)
Article: Greenspan, Kissinger: Oil Drives US in Iraq, Iran (September 17, 2021)
Article: Greenspan: Ouster of Hussein Crucial for Oil Security (September 17, 2021)
Article: The Battle for Iraq Is About Oil and Democracy, Not Religion! (September 10, 2021)
Article: Commerce Seeks Adviser for Iraq Oil Interests (September 10, 2021)
Article: Missteps and Mistrust Mark the Push for Legislation (September 5, 2021)
Article: What Is Holding Up the Delivery of the Long-Awaited Iraqi Oil Law? (August 22, 2021)
Article: Oil Giants Rush to Lay Claim to Iraq (August 19, 2021)
Article: Why Iraqis Oppose US-Backed Oil Law (August 19, 2021)
Research: Iraq Oil: The Vultures are Waiting (Sarah Meyer, 03 September 2021)
Article: Commentary: Iraq's wealth in the balance (08 August 2021)
Article: 108 Iraqi oil experts demand slow down in passage of Oil and Gas law (30 July 2021)
Article: Iraq's Workers Strike to Keep Their Oil (June 2007)
Article: What Congress Really Approved: Benchmark No. 1: Privatizing Iraq's Oil for US Companies (May 26, 2022)
Article: Losing Fuel (May 25, 2022)
Article: Some Iraqi MPs Say Draft Oil Law Unacceptable (20 May 2022)
Article: Iraq-Iran Increasing Bilateral Ties (18 May 2022)
Article: Iraqis Resist US Pressure to Enact Oil Law (May 13, 2022 Los Angeles Times)
Article: Billions in Oil Missing in Iraq, U.S. Study Says (12 May 2022)
Article: Iraq War Is All About Controlling The Oil (11 May 2022)
Research: The Iraq Oil Crunch: Index Timeline (Sarah Meyer, 09 May 2022)
Article: The Struggle over Iraqi Oil (May 8, 2022 TomDispatch)
Article: Kurds to 'block' Iraq oil law (29 April 2022)
Article: Iraq May Have Massive Undiscovered Reserves (19 April 2022)
Article: Violence Threatens Oil (April 13, 2022 UPI)
Article: Iraq Oil Law Turns Back the Clock to 1951 (13 April 2022)
Article: Sunni MP: U.S. Helped Shape Iraq Oil Law (07 April 2022)
Article: Bush Bailout Pal Drooling For Iraqi Oil (April 2007)
Article: Kurds Near Agreement with 15 Oil Companies (23 March 2022)
Mystery of Missing
Meters: Accounting for Iraq’s Oil Revenue
(March 22, 2022
Article: Whose Oil Is It, Anyway? (March 13, 2007 New York Times)
Article: Foreign Office Helped Set Up Iraqi Oil Deals (March 11, 2022 Independent)
Article: BG Spearheads Move to Tap Iraq's Riches (March 10, 2022 Telegraph)
Article: Cabinet Readies Iraqi Oil for Privatization (February 27, 2022)
Iraq Loses 400,000
Barrels a Day To Violence
(20 Feb 2022)
Article: Iraqi Oil Wealth Stays Locked Up (February 20, 2022 Wall Street Journal)
Article: Iraq Oil Technocrats: Time Not Suitable for Oil Law (February 17, 2022 Dow Jones Newswires)
Article: Meters Cost Iraq Billions In Stolen Oil (08 Feb 2022)
Article: U.S.-Tailored Iraqi Oil Alarm (27 Jan 2022)
Article: Iraqi Leaders Still Wrangling Over Hydrocarbon Law (January 9, 2022 Dow Jones)
Article: Future of Iraq: The spoils of war (07 Jan 2022)
Article: Blood and oil: How the West will profit from Iraq's most precious commodity (07 Jan 2022)
Article: Will Iraq’s Oil Become a Curse? (December 22, 2021 Der Spiegel)
Article: The Roving Eye (December 14, 2021 Asia Times)
Article: Iraqi Trade Union Statement on the Oil Law (December 14, 2021)
Article: US staying the course for Big Oil in Iraq (13 Dec 2021)
Article: It's Still About Oil in Iraq (December 8, 2021 Los Angeles Times)
Article: Troops Out, Oil Companies In: The Baker Agenda? (07 Dec 2021)
Article: Iraqi Kurds' Oil Law Poses Problem for Baghdad (November 9, 2021 Radio Free Europe/Radio Liberty)
Article: Bush U.S. Must Stay In Iraq To Control Oil (02 Nov 2021)
Article: The U.S. Takeover of Iraqi Oil (17 Oct 2006) part 2
Article: Bush's Petro-Cartel Almost Has Iraq's Oil (16 Oct 2021) part 1
Article: Will Iraq Repeat Russia’s Oil Mistakes? (October 2006 Carbon Web)
Article: Turning Eastward for Oil Contracts (September 27, 2021 Stratfor)
Article: Oil Majors Maneuver for Prime Position in Iraq (August 23, 2021 Reuters)
Article: George's Oil Dubya-Speak (August 21, 2021 Carbon Web)
Article: Iraq to Talk with Big Oil Companies in 2 Months (August 2, 2021 Reuters)
Article: Iraqi Unions Kept Away from Oil Legislation (August 1, 2021 Niqash)
Article: Of Oil, War and Power - Learning From History (July 10, 2021 Niqash)
Article: BHP “Wanted Rifkind to Lobby US for Iraq Oil” (July 5, 2021 Independent)
Article: Oil Privatisation by the Back Door (June 26, 2021 Niqash)
Article: For Whom, the Wells Drilled? (June 21, 2022 Niqash)
Article: The Black Gold Rush (June 15, 2022 Niqash)
PDF File: Production sharing agreements: oil privatisation by another name? (25 May 2022)
Article: Oil Prospecting In Kurdish-Administered North Intensifies (May 12, 2022 Radio Free Europe/Radio Liberty)
Article: USAID Provides Adviser to Iraq Govt on Oil Law -Spokesman (April 28, 2022 Dow Jones Newswires)
Article: Iraq's Kurds Aim for Own Oil Ministry (April 19, 2022 Los Angeles Times)
Article: Further Steps toward Long-Term Oil Contracts (April 2006 Carbon Web)
Article: Abizaid Says US May Want to Keep Bases in Iraq (March 15, 2022 Reuters)
corporate plunder of Iraq (11 Feb 2022)
Article: Oil, conflict and the future of global energy supplies (22 Jan 2022)
Article: Speech Delivered at the International Peace Conference (January 11, 2022 General Union of Oil Employees in Basra)
Article: The Last Word: Noam Chomsky (January 9, 2022 Newsweek)
Article: Iraqis Pummeled at the Pumps (December 28, 2021 Los Angeles Times)
Article: Big Oil's occupation of Iraq (13 Dec 2021)
Article: Did Big Oil participate in planning invasion of Iraq? Thomas Eley (11 Dec 2021)
Article: GPF on Great Iraq Oil Ripoff (03 Dec 2021)
Article: Kurdish Oil Deal Shocks Iraq's Political Leaders (December 1, 2021 Los Angeles Times)
PDF File: The Rip-Off of Iraq’s Oil Wealth (25 Nov 2021)
Article: Iraqis to lose $200Biilion to US/UK Oil Companies (24 Nov 2021)
Article: Iraq's oil: The spoils of war (22 Nov 2021)
Article: Document Says Oil Chiefs Met With Cheney Task Force, washingtonpost.com (16 Nov 2021)
Article: So Iraq was about the oil, Consortium News, (08 Nov 2021)
Article: Coalition Warships Safeguard Iraq's Precious Oil Terminals (October 12, 2021 Agence France Presse)
Article: What Is Happening to Iraqi Oil? (October 10, 2021 Middle East Economic Survey)
Article: Iraq Constitution Lays Ground for Oilfield Sell-Off (October 1, 2021 Carbon Web)
Article: Heritage Oil Signs Agreement for Kurdistan, Iraq Field Study (September 28, 2021 CNW Telbec)
Article: Missteps Hamper Iraqi Oil Recovery (September 26, 2021 Los Angeles Times)
Article: The Failed War for Oil, AlterNet (23 Sept 2021)
Article: More Blood, Less Oil (September 21, 2021 TomDispatch)
Article: Bush Gives New Reason for Iraq War (August 31, 2021 Associated Press)
Article: Iraqi Kurds Demand Say over Northern Oilfields (July 29, 2021 Reuters)
Article: Oil and Blood (July 28, 2021 New York Times)
Article: Iraq’s Untold Story (July 26, 2021 Carbon Web)
Article: Why Iraq Oil Money Hasn't Fueled Rebuilding (July 14, 2021 Christian Science Monitor)
Article: Deciding the Future of Iraq’s Oil Wealth (July 12, 2021 ISN Security Watch)
Article: Iraqi Oil Wealth: Issues of Governance and Development (July 2005 Open Society Institute)
Article: Iraq: The carve-up begins (23 June 2021)
Article: THE AMERICAN PLANS TO EXHAUST IRAQ AND TO STEAL ITS RESOURCES: FACTS AND FIGURES (22 June 2022)
Article: Iraq Oil Sales Concern Security Council (June 20, 2022 Associated Press)
Article: Iraq's Other Resistance (June 3, 2022 Guardian)
Article: Protecting the Future: Constitutional Safeguards for Iraq's Oil (May 2005 Iraq Revenue Watch)
Article: Blood for Oil? (April 21, 2022 London Review of Books)
Article: Corruption Draining Oil Industry (April 20, 2022 Institute for War & Peace Reporting)
Article: Iraq's Oilworkers Will Defend the Country's Oil (April 5, 2022 truthout)
Article: Control of Oil Ministry Divides Factions in Iraq (March 25, 2022 Wall Street Journal)
Article: Mapping the Oil Motive (March 18, 2022 TomPaine)
Article: Secret US Plans for Iraq's Oil (March 17, 2022 BBC Newsnight)
Article: Oil Companies Hopeful on Iraqi Politics (March 14, 2022 Associated Press)
Article: Derelict Plants Are Crippling Iraq's Petroleum Industry (March 3, 2022 New York Times)
Article: Seeking Iraq's Oil Prize Government May Allow Foreign Petroleum Firms to Invest ( January 26, 2022 San Francisco Chronicle)
Article: Iraqi Oil and Tony Blair’s Absurd Conspiracy Theory (January 2005 Red Pepper)
Article: Oil, Power and Empire: Iraq and the U.S. Global Agenda, Scott D. O’Reilly (05 Oct 2021)
& Big Oil vs. the world 2/06/03 -
Iraqis Anxiously Await Decisions About the Oil Industry
Shell Executive to Oversee Iraqi Oil Industry 4/27/03 -
Who Will Control Iraq's Oil? 4/17/03 -
Coalition 'Focused on
Oilfields' 4/16/03 -
US Is Banking on Iraq Oil to Finance Reconstruction
Who Will Control Iraq's Oil? 4/9/03 -
Battle Over Who Can Sell
Iraq's Oil 4/7/03 -
U.S., U.K. Waged War on Iraq Because of Oil, Blair Adviser Says
Nielson: "US wants to
appropriate Iraq's oil" 09/05/2022
Pentagon's Oil Wars Policy 5/20/03 -
France Balks at US Control of Iraqi Oil Revenue 5/14/03
Iraq Will Control Its Oil, Iraqi Official Asserts
Oil Giants Line Up at Iraqi Pump 5/30/03 -
Future Iraq Oil Sales May Be Pawned to Banks 5/31/03 -
Pipeline Bombed to Keep Oil from Turkey 6/13/03 -
Iraqi Oil Awarded to a Variety of Nations' Companies
US Begins Exporting Iraqi Oil 6/23/03 -
ChevronTexaco Gets Contract for Iraq Oil 6/25/03 -
Iraq Oil Lobbying - Comments on the
Confidential Document (July 14, 2021)
Global Policy Forum
Oil Companies in
Iraq: A Century of Rivalry and War (November
Iraq: the Struggle
for Oil (August, 2002)
Oil in Iraq: the
Heart of the Crisis (December, 2002)
The Iraq Oil Bonanza:
Estimating Future Profits (January 28, 2022)
Beginnings: The Quest for Oil (April 25,
Beginnings: The Reign of a Monopoly (April
Great Power Conflict
over Iraqi Oil: the World War I Era (October,
Oil in Iraqi History
Iraq's massive oil reserves, the third-largest in the world, are about to be thrown open for large-scale exploitation by Western oil companies under a controversial law which is expected to come before the Iraqi parliament within days.
The US government has been involved in drawing up the law, a draft of which has been seen by The Independent on Sunday. It would give big oil companies such as BP, Shell and Exxon 30-year contracts to extract Iraqi crude and allow the first large-scale operation of foreign oil interests in the country since the industry was nationalised in 1972.
The huge potential prizes for Western firms will give ammunition to critics who say the Iraq war was fought for oil. They point to statements such as one from Vice-President Dick Cheney, who said in 1999, while he was still chief executive of the oil services company Halliburton, that the world would need an additional 50 million barrels of oil a day by 2010. "So where is the oil going to come from?... The Middle East, with two-thirds of the world's oil and the lowest cost, is still where the prize ultimately lies," he said.
Oil industry executives and analysts say the law, which would permit Western companies to pocket up to three-quarters of profits in the early years, is the only way to get Iraq's oil industry back on its feet after years of sanctions, war and loss of expertise. But it will operate through "production-sharing agreements" (or PSAs) which are highly unusual in the Middle East, where the oil industry in Saudi Arabia and Iran, the world's two largest producers, is state controlled.
Opponents say Iraq, where oil accounts for 95 per cent of the economy, is being forced to surrender an unacceptable degree of sovereignty.
Proposing the parliamentary motion for war in 2003, Tony Blair denied the "false claim" that "we want to seize" Iraq's oil revenues. He said the money should be put into a trust fund, run by the UN, for the Iraqis, but the idea came to nothing. The same year Colin Powell, then Secretary of State, said: "It cost a great deal of money to prosecute this war. But the oil of the Iraqi people belongs to the Iraqi people; it is their wealth, it will be used for their benefit. So we did not do it for oil."
Supporters say the provision allowing oil companies to take up to 75 per cent of the profits will last until they have recouped initial drilling costs. After that, they would collect about 20 per cent of all profits, according to industry sources in Iraq. But that is twice the industry average for such deals.
Greg Muttitt, a researcher for Platform, a human rights and environmental group which monitors the oil industry, said Iraq was being asked to pay an enormous price over the next 30 years for its present instability. "They would lose out massively," he said, "because they don't have the capacity at the moment to strike a good deal."
Iraq's Deputy Prime Minister, Barham Salih, who chairs the country's oil committee, is expected to unveil the legislation as early as today. "It is a redrawing of the whole Iraqi oil industry [to] a modern standard," said Khaled Salih, spokesman for the Kurdish Regional Government, a party to the negotiations. The Iraqi government hopes to have the law on the books by March.
Several major oil companies are said to have sent teams into the country in recent months to lobby for deals ahead of the law, though the big names are considered unlikely to invest until the violence in Iraq abates.
James Paul, executive director at the Global Policy Forum, the international government watchdog, said: "It is not an exaggeration to say that the overwhelming majority of the population would be opposed to this. To do it anyway, with minimal discussion within the [Iraqi] parliament is really just pouring more oil on the fire."
Vince Cable, the Liberal Democrat Treasury spokesman and a former chief economist at Shell, said it was crucial that any deal would guarantee funds for rebuilding Iraq. "It is absolutely vital that the revenue from the oil industry goes into Iraqi development and is seen to do so," he said. "Although it does make sense to collaborate with foreign investors, it is very important the terms are seen to be fair."
7 January 2022 10:39
So was this what the Iraq war was fought for, after all? As the number of US soldiers killed since the invasion rises past the 3,000 mark, and President George Bush gambles on sending in up to 30,000 more troops, The Independent on Sunday has learnt that the Iraqi government is about to push through a law giving Western oil companies the right to exploit the country's massive oil reserves.
And Iraq's oil reserves, the third largest in the world, with an estimated 115 billion barrels waiting to be extracted, are a prize worth having. As Vice-President Dick Cheney noted in 1999, when he was still running Halliburton, an oil services company, the Middle East is the key to preventing the world running out of oil.
Now, unnoticed by most amid the furore over civil war in Iraq and the hanging of Saddam Hussein, the new oil law has quietly been going through several drafts, and is now on the point of being presented to the cabinet and then the parliament in Baghdad. Its provisions are a radical departure from the norm for developing countries: under a system known as "production-sharing agreements", or PSAs, oil majors such as BP and Shell in Britain, and Exxon and Chevron in the US, would be able to sign deals of up to 30 years to extract Iraq's oil.
PSAs allow a country to retain legal ownership of its oil, but gives a share of profits to the international companies that invest in infrastructure and operation of the wells, pipelines and refineries. Their introduction would be a first for a major Middle Eastern oil producer. Saudi Arabia and Iran, the world's number one and two oil exporters, both tightly control their industries through state-owned companies with no appreciable foreign collaboration, as do most members of the Organisation of Petroleum Exporting Countries, Opec.
Critics fear that given Iraq's weak bargaining position, it could get locked in now to deals on bad terms for decades to come. "Iraq would end up with the worst possible outcome," said Greg Muttitt of Platform, a human rights and environmental group that monitors the oil industry. He said the new legislation was drafted with the assistance of BearingPoint, an American consultancy firm hired by the US government, which had a representative working in the American embassy in Baghdad for several months.
"Three outside groups have had far more opportunity to scrutinise this legislation than most Iraqis," said Mr Muttitt. "The draft went to the US government and major oil companies in July, and to the International Monetary Fund in September. Last month I met a group of 20 Iraqi MPs in Jordan, and I asked them how many had seen the legislation. Only one had."
Britain and the US have always hotly denied that the war was fought for oil. On 18 March 2003, with the invasion imminent, Tony Blair proposed the House of Commons motion to back the war. "The oil revenues, which people falsely claim that we want to seize, should be put in a trust fund for the Iraqi people administered through the UN," he said.
"The United Kingdom should seek a new Security Council Resolution that would affirm... the use of all oil revenues for the benefit of the Iraqi people."
That suggestion came to nothing. In May 2003, just after President Bush declared major combat operations at an end, under a banner boasting "Mission Accomplished", Britain co-sponsored a resolution in the Security Council which gave the US and UK control over Iraq's oil revenues. Far from "all oil revenues" being used for the Iraqi people, Resolution 1483 continued to make deductions from Iraq's oil earnings to pay compensation for the invasion of Kuwait in 1990.
That exception aside, however, the often-stated aim of the US and Britain was that Iraq's oil money would be used to pay for reconstruction. In July 2003, for example, Colin Powell, then Secretary of State, insisted: "We have not taken one drop of Iraqi oil for US purposes, or for coalition purposes. Quite the contrary... It cost a great deal of money to prosecute this war. But the oil of the Iraqi people belongs to the Iraqi people; it is their wealth, it will be used for their benefit. So we did not do it for oil."
Paul Wolfowitz, Deputy Defense Secretary at the time of the war and now head of the World Bank, told Congress: "We're dealing with a country that can really finance its own reconstruction, and relatively soon."
But this optimism has proved unjustified. Since the invasion, Iraqi oil production has dropped off dramatically. The country is now producing about two million barrels per day. That is down from a pre-war peak of 3.5 million barrels. Not only is Iraq's whole oil infrastructure creaking under the effects of years of sanctions, insurgents have constantly attacked pipelines, so that the only steady flow of exports is through the Shia-dominated south of the country.
Worsening sectarian violence and gangsterism have driven most of the educated élite out of the country for safety, depriving the oil industry of the Iraqi experts and administrators it desperately needs.
And even the present stunted operation is rife with corruption and smuggling. The Oil Ministry's inspector-general recently reported that a tanker driver who paid $500 in bribes to police patrols to take oil over the western or northern border would still make a profit on the shipment of $8,400.
"In the present state, it would be crazy to pump in more money, just to be stolen," said Greg Muttitt. "It's another reason not to bring in $20bn of foreign money now."
Before the war, Mr Bush endorsed claims that Iraq's oil would pay for reconstruction. But the shortage of revenues afterwards has silenced him on this point. More recently he has argued that oil should be used as a means to unify the country, "so the people have faith in central government", as he put it last summer.
But in a country more dependent than almost any other on oil - it accounts for 70 per cent of the economy - control of the assets has proved a recipe for endless wrangling. Most of the oil reserves are in areas controlled by the Kurds and Shias, heightening the fears of the Sunnis that their loss of power with the fall of Saddam is about to be compounded by economic deprivation.
The Kurds in particular have been eager to press ahead, and even signed some small PSA deals on their own last year, setting off a struggle with Baghdad. These issues now appear to have been resolved, however: a revenue-sharing agreement based on population was reached some months ago, and sources have told the IoS that regional oil companies will be set up to handle the PSA deals envisaged by the new law.
The Independent on Sunday has obtained a copy of an early draft which was circulated to oil companies in July. It is understood there have been no significant changes made in the final draft. The terms outlined to govern future PSAs are generous: according to the draft, they could be fixed for at least 30 years. The revelation will raise Iraqi fears that oil companies will be able to exploit its weak state by securing favourable terms that cannot be changed in future.
Iraq's sovereign right to manage its own natural resources could also be threatened by the provision in the draft that any disputes with a foreign company must ultimately be settled by international, rather than Iraqi, arbitration.
In the July draft obtained by The Independent on Sunday, legislators recognise the controversy over this, annotating the relevant paragraph with the note, "Some countries do not accept arbitration between a commercial enterprise and themselves on the basis of sovereignty of the state."
It is not clear whether this clause has been retained in the final draft.
Under the chapter entitled "Fiscal Regime", the draft spells out that foreign companies have no restrictions on taking their profits out of the country, and are not subject to any tax when doing this.
"A Foreign Person may repatriate its exports proceeds [in accordance with the foreign exchange regulations in force at the time]." Shares in oil projects can also be sold to other foreign companies: "It may freely transfer shares pertaining to any non-Iraqi partners." The final draft outlines general terms for production sharing agreements, including a standard 12.5 per cent royalty tax for companies.
It is also understood that once companies have recouped their costs from developing the oil field, they are allowed to keep 20 per cent of the profits, with the rest going to the government. According to analysts and oil company executives, this is because Iraq is so dangerous, but Dr Muhammad-Ali Zainy, a senior economist at the Centre for Global Energy Studies, said: "Twenty per cent of the profits in a production sharing agreement, once all the costs have been recouped, is a large amount." In more stable countries, 10 per cent would be the norm.
While the costs are being recovered, companies will be able to recoup 60 to 70 per cent of revenue; 40 per cent is more usual. David Horgan, managing director of Petrel Resources, an Aim-listed oil company focused on Iraq, said: "They are reasonable rates of return, and take account of the bad security situation in Iraq. The government needs people, technology and capital to develop its oil reserves. It has got to come up with terms which are good enough to attract companies. The major companies tend to be conservative."
Dr Zainy, an Iraqi who has recently visited the country, said: "It's very dangerous ... although the security situation is far better in the north." Even taking that into account, however, he believed that "for a company to take 20 per cent of the profits in a production sharing agreement once all the costs have been recouped is large".
He pointed to the example of Total, which agreed terms with Saddam Hussein before the second Iraq war to develop a huge field. Although the contract was never signed, the French company would only have kept 10 per cent of the profits once the company had recovered its costs.
And while the company was recovering its costs, it is understood it agreed to take only 40 per cent of the profits, the Iraqi government receiving the rest.
Production sharing agreements of more than 30 years are unusual, and more commonly used for challenging regions like the Amazon where it can take up to a decade to start production. Iraq, in contrast, is one of the cheapest and easiest places in the world to drill for and produce oil. Many fields have already been discovered, and are waiting to be developed.
Analysts estimate that despite the size of Iraq's reserves - the third largest in the world - only 2,300 wells have been drilled in total, fewer than in the North Sea.
Confirmation of the generous terms - widely feared by international non government organisations and Iraqis alike - have prompted some to draw parallels with the production-sharing agreements Russia signed in the 1990s, when it was bankrupt and in chaos.
At the time Shell was able to sign very favourable terms to develop oil and gas reserves off the coast of Sakhalin island in the far east of Russia. But at the end of last year, after months of thinly veiled threats from the environment regulator, the Anglo-Dutch company was forced to give Russian state-owned gas giant Gazprom a share in the project.
Although most other oil experts endorsed the view that PSAs would be needed to kick-start exports from Iraq, Mr Muttitt disagreed. "The most commonly mentioned target has been for Iraq to increase production to 6 million barrels a day by 2015 or so," he said. "Iraq has estimated that it would need $20bn to $25bn of investment over the next five or six years, roughly $4bn to $5bn a year. But even last year, according to reports, the Oil Ministry had between $3bn and $4bn it couldn't invest. The shortfall is around $1bn a year, and that could easily be made up if the security situation improved.
"PSAs have a cost in sovereignty and future revenues. It is not true at all that this is the only way to do it." Technical services agreements, of the type common in countries which have a state-run oil corporation, would be all that was necessary.
James Paul of Global Policy Forum, another advocacy group, said: "The US and the UK have been pressing hard on this. It's pretty clear that this is one of their main goals in Iraq." The Iraqi authorities, he said, were "a government under occupation, and it is highly influenced by that. The US has a lot of leverage... Iraq is in no condition right now to go ahead and do this."
Mr Paul added: "It is relatively easy to get the oil in Iraq. It is nowhere near as complicated as the North Sea. There are super giant fields that are completely mapped, [and] there is absolutely no exploration cost and no risk. So the argument that these agreements are needed to hedge risk is specious."
One point on which all agree, however, is that only small, maverick oil companies are likely to risk any activity in Iraq in the foreseeable future. "Production over the next year in Iraq is probably going to fall rather than go up," said Kevin Norrish, an oil analyst from Barclays. "The whole thing is held together by a shoestring; it's desperate."
An oil industry executive agreed, saying: "All the majors will be in Iraq, but they won't start work for years. Even Lukoil [of Russia], the Chinese and Total [of France] are not in a rush to endanger themselves. It's now very hard for US and allied companies because of the disastrous war."
Mr Muttitt echoed warnings that unfavourable deals done now could unravel a few years down the line, just when Iraq might become peaceful enough for development of its oil resources to become attractive. The seeds could be sown for a future struggle over natural resources which has led to decades of suspicion of Western motives in countries such as Iran.
Iraqi trade union leaders who met recently in Jordan suggested that the legislation would cause uproar once its terms became known among ordinary Iraqis.
"The Iraqi people refuse to allow the future of their oil to be decided behind closed doors," their statement said. "The occupier seeks and wishes to secure... energy resources at a time when the Iraqi people are seeking to determine their own future, while still under conditions of occupation."
The resentment implied in their words is ominous, and not only for oil company executives in London or Houston. The perception that Iraq's wealth is being carved up among foreigners can only add further fuel to the flames of the insurgency, defeating the purpose of sending more American troops to a country already described in a US intelligence report as a cause célèbre for terrorism.
America protects its fuel supplies - and contracts
Despite US and British denials that oil was a war aim, American troops were detailed to secure oil facilities as they fought their way to Baghdad in 2003. And while former defence secretary Donald Rumsfeld shrugged off the orgy of looting after the fall of Saddam's statue in Baghdad, the Oil Ministry - alone of all the seats of power in the Iraqi capital - was under American guard.
Halliburton, the firm that Dick Cheney used to run, was among US-based multinationals that won most of the reconstruction deals - one of its workers is pictured, tackling an oil fire. British firms won some contracts, mainly in security. But constant violence has crippled rebuilding operations. Bechtel, another US giant, has pulled out, saying it could not make a profit on work in Iraq.
In just 40 pages, Iraq is locked into sharing its oil with foreign investors for the next 30 years
A 40-page document leaked to the 'IoS' sets out the legal framework for the Iraqi government to sign production- sharing agreement contracts with foreign companies to develop its vast oil reserves.
The paper lays the groundwork for profit-sharing partnerships between the Iraqi government and international oil companies. It also lays out the basis for co-operation between Iraq's federal government and its regional authorities to develop oil fields.
The document adds that oil companies will enjoy contracts to extract Iraqi oil for up to 30 years, and stresses that Iraq needs foreign investment for the "quick and substantial funding of reconstruction and modernisation projects".
It concludes that the proposed hydrocarbon law is of "great importance to the whole nation as well as to all investors in the sector" and that the proceeds from foreign investment in Iraq's oilfields would, in the long term, decrease dependence on oil and gas revenues.
The role of oil in Iraq's fortunes
Iraq has 115 billion barrels of known oil reserves - 10 per cent of the world total. There are 71 discovered oilfields, of which only 24 have been developed. Oil accounts for 70 per cent of Iraq's GDP and 95 per cent of government revenue. Iraq's oil would be recovered under a production sharing agreement (PSA) with the private sector. These are used in only 12 per cent of world oil reserves and apply in none of the other major Middle Eastern oil-producing countries. In some countries such as Russia, where they were signed at a time of political upheaval, politicians are now regretting them.
The $50bn bonanza for US companies piecing a broken Iraq together
The task of rebuilding a shattered Iraq has gone mainly to US companies.
As well as contractors to restore the infrastructure, such as its water, electricity and gas networks, a huge number of companies have found lucrative work supporting the ongoing coalition military presence in the country. Other companies have won contracts to restore Iraq's media; its schools and hospitals; its financial services industry; and, of course, its oil industry.
In May 2003, the Coalition Provisional Authority (CPA), part of the US Department of Defence, created the Project Management Office in Baghdad to oversee Iraq's reconstruction.
In June 2004 the CPA was dissolved and the Iraqi interim government took power. But the US maintained its grip on allocating contracts to private companies. The management of reconstruction projects was transferred to the Iraq Reconstruction and Management Office, a division of the US Department of State, and the Project and Contracting Office, in the Department of Defence.
The largest beneficiary of reconstruction work in Iraq has been KBR (Kellogg, Brown & Root), a division of US giant Halliburton, which to date has secured contracts in Iraq worth $13bn (£7bn), including an uncontested $7bn contract to rebuild Iraq's oil infrastructure. Other companies benefiting from Iraq contracts include Bechtel, the giant US conglomerate, BearingPoint, the consultant group that advised on the drawing up of Iraq's new oil legislation, and General Electric. According to the US-based Centre for Public Integrity, 150-plus US companies have won contracts in Iraq worth over $50bn.
30,000 Number of Kellogg, Brown and Root employees in Iraq.
36 The number of interrogators employed by Caci, a US company, that have worked in the Abu Ghraib prison since August 2003.
$12.1bn UN's estimate of the cost of rebuilding Iraq's electricity network.
$2 trillion Estimated cost of the Iraq war to the US, according to the Nobel prize-winning economist Joseph Stiglitz.
WHAT THEY SAID
"Oil revenues, which people falsely claim that we want to seize, should be put in a trust fund for the Iraqi people"
Tony Blair; Moving motion for war with Iraq, 18 March 2022
"Oil belongs to the Iraqi people; the government has... to be good stewards of that valuable asset "
George Bush; Press conference, 14 June 2022
"The oil of the Iraqi people... is their wealth. We did not [invade Iraq] for oil "
Colin Powell; Press briefing, 10 July 2021
"Oil revenues of Iraq could bring between $50bn and $100bn in two or three years... [Iraq] can finance its reconstruction"
Paul Wolfowitz; Deputy Defense Secretary, March 2003
"By 2010 we will need [a further] 50 million barrels a day. The Middle East, with two-thirds of the oil and the lowest cost, is still where the prize lies"
Dick Cheney; US Vice-President, 1999
U.S.-Tailored Iraqi Oil Alarm
For Producers, Consumers
By Nicola Nasser
24 January, 2007
While the Iraqis were busy counting their death toll of more than 650,000 since March 2003, the United Nations busy counting their dead of more than 34,000 in 2006 only, the Pentagon counting more than 3,070 American deaths and the U.S. treasury counting more than $600 billion of taxpayer money spent so far in Iraq , stealthily and suddenly the U.S. occupation’s oil prize rang louder than the war drums to alert the regional oil producers as well as the major world consumers to guard against the looming threat coming out of Iraq.
After listening to the monotonous and incredible U.S. lies for four years about “we are not there for Iraq's oil,” the oil truth is now unfolding. Without a decisive military victory, the U.S. occupation of Iraq seems to be about to grab its oil prize by establishing a new sharing arrangement between a major national producer and the multi-national giants, an arrangement that Washington plans to set as the model to be followed both by the oil-rich region and the world at large.
This prize has been the dream of the successive U.S. administrations; on January 18, it came one step closer to reality when Iraq's Oil Committee approved the new draft hydrocarbon law, sent it to the cabinet within a week and, when approved, will go to the parliament immediately thereafter.
The early draft of the law was prepared by BearingPoint American consultants, hired by the Bush administration, and sent to the White House and major western petroleum corporations in July, and then to the International Monetary Fund two months later, while most Iraqi legislators and public remained in the dark.
The approved production-sharing agreements (PSAs) favor investing foreign oil companies with 70 percent of oil revenue to recoup their initial outlay, then companies can reap 20 percent of the profit without any tax or other restrictions on their transfers abroad.
Iraqi Oil File Opened
Several indicators have surfaced recently that point to bringing the oil factor in Iraq back from the back burner to the forefront of the public eye. The first has been Ankara’s escalating drive to block the control of the northern Iraqi oil city of Kirkuk by the Iraqi Kurds, lest Kirkuk's lucrative oil would be used to fund a bid for secession from Iraq that could encourage separatist Kurdish guerrillas in Turkey herself.
The second indicator is Iraq’s push forward on oil developments with Iran and Kuwait to determine control in the future of the cross-border oil fields, according to the Kuwait Times. Cross-border oil fields were contested and have been a cause of friction poisoning Iraq’s relations with its eastern and southern neighbors.
A third indicator that the Iraqi oil file is being wide opened is the Iraqi - Syrian negotiations on the sidelines of the latest visit to Damascus by Iraqi President Jalal Talabani to reopen the oil pipeline between the northern Iraqi city of Kirkuk and the Syrian coastal town of Banyas on the Mediterranean. This pipeline was reopened in 1997 and drew U.S. disapproval; American air strikes damaged the Iraqi side of the pipeline at the start of the U.S.-led invasion. Since then Washington was reported to favor reopening a Kirkuk-Haifa oil pipeline via Jordan, which was shut down after the creation of Israel in 1948.
However the new Iraqi draft hydrocarbon law, if passed by the Iraqi parliament, would be a milestone not only to judge the U.S.-British invasion of Iraq as a success or a failure, but would more importantly determine the future network of relations between the oil-producing countries and the multi-national oil giants, to the detriment of the major consumers who will be held hostage to the whims of the American holder of the key to Middle Eastern vital oil resources.
President George W. Bush in his “new Strategy” speech on January 10 sounded ambiguous and elusive in his definition of the success he is hunting in Iraq. “A successful strategy for Iraq goes beyond military operations,” he said, adding: “Victory … in Iraq will bring something new in the Arab world.” Bush stopped short of explicitly defining success and victory as economic in framework that has an oil breakthrough at its core.
In his speech Bush referred only briefly twice to oil. A failure of the U.S. in Iraq would enable the “Radical Islamic extremists” to “use oil revenues … to topple moderate governments” across the region, he warned, and announced that “Iraq will pass legislation to share oil revenues among all Iraqis,” without even a hint to any U.S. interest, because he was very well aware of the hornet nest he would unleash had he prematurely even hinted to his oil prize.
The Republican-Democratic electoral wrangling, no matter how ferocious it was or would become over internal issues, could not overlap a “red line” consensus on never compromising the U.S. national oil strategic interests, which both parties are determined to defend regardless of how much American or non-American blood would spill in their defense.
The bipartisan Iraq Study Group Report articulated that consensus concisely in a straightforward language. It is noteworthy that Bush who ignored the essential recommendations of this report had selectively adopted recommendations 62 and 63. Recommendation 63 stipulates the US should “assist” Iraqi leaders in privatizing the national oil industry into a “commercial enterprise” to encourage investment by the multi-national oil companies.
Recommendation 62 urges the US government to help draft an Iraqi oil law that “creates a fiscal and legal framework for investment” and, in conjunction with the International Monetary Fund [IMF], to “press Iraq to continue reducing subsidies in the energy sector...until Iraqis pay market prices for oil products.” The James Baker - Lee Hamilton Report proposes to make everyday life harder for average Iraqis so that the U.S. oil industry profits.
The Bush administration, even before the 2003 invasion, planned to pass a new oil law for Iraq that would turn its nationalized oil system over to private foreign corporate control. Months after the US invasion of Iraq it was revealed that control of Iraq’s oil fields was one of the chief issues discussed in Vice President Dick Cheney’s Energy Task Force meeting with oil executives in 2001.
Bush made his first public demand of the Iraqi government to pass the oil law in December. Secretary of State Condoleezza Rice, U.S. ambassador to Iraq Zalmay Khalilzad and General George W. Casey Jr., the senior American commander in Iraq, repeated the same demand. In July last year, Energy Secretary Sam Bodman announced in Baghdad that senior U.S. oil company executives would not enter Iraq without passage of the new law. Petroleum Economist magazine later reported that U.S. oil companies put passage of the oil law before security concerns as the deciding factor over their entry into Iraq. Passing an oil law has been also a key demand of the United States in providing further military support to Baghdad’s “national unity government.”
Iraqis in the Dark
This law has been in the works even months before the invasion, when the Bush Administration brought in Phillip Carroll, former CEO of both Shell and Fluor, to devise "contingency plans" to pump the Iraqi oil after the invasion; Carroll was made later the head of the American "advisory committee" overseeing the oil industry of the conquered land.
The U.S., the IMF and the major oil giants are using fear to pursue their agenda of privatizing and selling off Iraq's oil resources. They are taking advantage of an occupied, war-ravaged and internally divided nation to get control over as much oil as possible, on the best possible terms, and to get what they were denied before the war or at anytime in modern Iraqi history: Access to Iraq's oil under the ground, Iraqi academic and senior lecturer in Middle East economics at the University of Exeter, Kamil Mahdi, wrote recently.
Most Iraqis remain in the dark about the new oil law. Iraq's oil workers had to travel to Jordan to learn details of the law from the London-based research organization Platform. As a result, five Iraqi trade union federations released a public statement rejecting “the handing of control over oil to foreign companies, whose aim is to make big profits at the expense of the Iraqi people, and to rob the national wealth, according to long-term, unfair contracts, that undermine the sovereignty of the state and the dignity of the Iraqi people.” The statement added that this was a “red line” they would not allow to be crossed.
Washington has been unsuccessfully trying to camouflage her oil prize in Iraq since its invasion in 2003 and similarly she can hardly now smokescreen the oil factor in her escalating crisis with Iran. “Weapons of mass destruction” or “links to Al Qaeda” were not the true reasons for the U.S.-British invasion of Iraq as much as the real reason for the present U.S.-Iran crisis is not about Iran’s “nukes.” In both cases regime change was the goal, which if achieved could give Washington an access to almost 20 percent of the world's proven Iraqi and Iranian oil reserves, respectively the third and fourth largest in the world.
Iran the Next Target
Iraqi and Iranian oil reserves are targeted per se, but clinching these assets out of national decision-making would also give Washington control over about 60 percent of the world's conventional oil reserves located in essentially five countries in the Arabian Gulf region (described officially by Iran as “Persian”). Iran's close proximity to these major oil resources and her balancing power in controlling access to them have made her the second major obstacle after Iraq that could block any U.S. strategic drive to gain control over them. In 2003, about 90% of oil exported from the Gulf transited by tanker through the Strait of Hormuz, located between Oman and Iran.
The Iraqi bill would allow for the first foreign exploitation of Iraqi oil reserves since the industry was nationalized in 1972. The introduction of PSAs would also be a first in the Middle East. Washington wants the Iraqi law to be the rule that has to apply across the oil-rich region as well as worldwide. Most members of the Organization of Petroleum Exporting Countries (OPEC) nationally control their oil industries through state-owned companies with no appreciable foreign collaboration.
Such an arrangement was impossible to pass through during the bi-polar world order, but has become possible following the collapse of the former USSR if the American uni-polar power could rein in the remnants of the ruling national liberation movements, or could topple them. Within this context only can the invasion and occupation of Iraq as well as the U.S.-Iranian current crisis be perceived. Since 1972 and 1979 respectively the U.S. was denied the banana-republics-styled free hand over Iraqi and Iranian oil assets. Iraq was invaded and occupied while a regime change that would secure U.S. control is still in the works. Meanwhile Iran is being pressured and threatened with more sanctions and a military U.S. strike to change the regime in Tehran.
The more vulnerable regional oil producers, as well as their counterparts in central Asia, would be wiser to do their best not to allow the draft Iraqi law to pass to be the future yardstick to determine their relations with the multi-national oil giants, and to pre-empt a political and military environment synonymous to the one prevailing now in Iraq to be copied in Iran, which would inevitably lead to a gradual erosion or abrupt end to their beneficial current arrangements.
Voluntarily or grudgingly getting along with Bush’s old or “new” strategies, would never spare them. They should reconsider because Iraq was the first target and they are the next targets; Iran also should reconsider in Iraq because she is “the” next target.
Major oil consumers in China, Japan and Europe should also be alerted to avert a possible U.S. suffocating monopoly or hegemony on oil resources at a time their as well as the American demand for oil is on the rise; their economic competition or cooperation with the U.S. will only be adversely compromised by Washington’s grip on the vital mineral that is driving their industrial economies.
Nicola Nasser is a veteran Arab journalist based in Ramallah, West Bank of the Israeli-occupied Palestinian territories.
DALLAS, Feb. 8, 2007
(CBS) This story was written by Robert Riggs, chief investigative reporter for CBS station KTVT in Dallas.
al Basrah Oil Terminal, heavily armed anti-terrorism forces stand guard —
while the theft of the century may be occurring right under their noses.
Tankers berthed at the sprawling platform, located off Iraq's southern coast
in the Persian Gulf, take on the oil that is the lifeblood of Iraq's
Millions of dollars' worth of oil is stolen daily in Iraq because of the absence of oil meters, a basic tool for preventing corruption, according to estimates by classified CIA and State Department reports, the Iraq Study Group Report , a former consultant to a U.S. oil company and a former State Department adviser to Iraq's Oil Ministry.
A six-month investigation by KTVT found the annual thefts run into the billions of dollars and help fuel insurgents, sectarian militias and corrupt officials — as well as deprive the Iraqis of much-needed money to run their struggling government.
"I would say probably between 200,000 and 500,000 barrels a day is probably unaccounted for in Iraq," says Mikel Morris, who worked for the State Department's Iraq Reconstruction Management Organization (IRMO) in Baghdad. Depending on fluctuations in the price of oil, the thefts could be worth $20 million to $30 million per day.
A Houston-area petroleum engineer, Morris says Iraq's oil industry is wide-open to corruption because there are no working meters anywhere in the system to keep count of how many millions of barrels of oil Iraq produces or exports. "It’s like a supermarket without a cashier. There is no metering. And there's no metering at the well heads either. There's no metering at any of the major pipeline junctions," he says.
KTVT obtained photographs taken last spring during an Iraqi inspection that picture rusted, broken meters on the al Basrah Oil Terminal, known as the ABOT.
The bulk of Iraq's crude oil exports, which provided 94 percent of Iraq's $28 billion budget last year, are pumped into tankers at the terminal. The ABOT's oil meters have been inoperable since the U.S. invasion nearly four years ago, according to the U.S. Army Corps of Engineers, a former senior oil consultant for IRMO, statements by Iraqi officials and reports by a United Nations monitoring group.
Morris and other sources familiar with operations at the ABOT suspect that the inoperable meters allow corrupt officials to overload tankers with oil that is then sold on the black market. Intelligence reports warn that the profits from smuggled oil and petroleum products help fuel the insurgency in Iraq, though estimates of the losses vary widely.
A recent report to the Congressional leadership by the Government Accountability Office (GAO) also attributed the losses of Iraqi petroleum products to insurgents and underscored the absence of working meters. "According to State Department officials and reports, about 10 percent to 30 percent of refined fuels is diverted to the black market or is smuggled out of Iraq and sold for a profit. According to U.S. Embassy documents, the insurgency has been partly funded by corrupt activities within Iraq and from skimming profits from black marketers. In addition, Iraq lacks fully functioning meters to measure oil production and exports."
The ABOT is under the control of Iraq's state-owned South Oil Company, which is now dominated by Shiites in southern Iraq, and the sales are managed by the State Oil Marketing Organization (SOMO). Morris says SOMO has refused to divulge its export contracts, records of sales — or even the names of buyers — in order for him to estimate how much oil is being stolen. "There's a certain secrecy behind that, so that if you don't know what's being moved in country, then you don't know what's being lost, and you don't know what's being sold," he says. "Also, you don't know what political motivations are behind what political party wants to control the oil sales. So they can take their share of the crude sales for their own political contributions or aspirations. So there's always that push to control SOMO and keep the oil sales secret."
Morris says the honest Iraqi professionals in the Oil Ministry who pushed for metering and transparency put their lives at risk. "Anytime you gave the impression that you were working with the U.S. and trying to clean up the corruption problems and the word got out, there were going to be people there to make sure you didn't. One of your family members was going to disappear, or you would disappear."
Morris also became a target. He says Oil Ministry insiders tipped off insurgents about his visits to oil facilities as well as to the ministry's headquarters in Baghdad. In 2005, his Army convoys suffered deadly attacks by a suicide bomber and another by a roadside bomb. "You feel betrayed because someone inside the ministry has already helped get you attacked and tried to kill you. Our young soldiers there would ask me at the end of the mission, 'What did you get done today? Were the meetings good? Are you getting something accomplished?' I feel bad about the deaths we had from the U.S. Army soldiers that died protecting us. It still hurts me."
Iraq holds the world's second-largest proven oil reserves — approximately 100 billion barrels, with the potential of as high as 200 billion barrels. Control of that wealth is now up for grabs and is the major driving force behind the violence in Iraq, according to Amy Myers Jaffe, an energy adviser to the Iraq Study Group, which was co-chaired by former Secretary of State James Baker and former Congressman Lee Hamilton. "You really have to think about the oil as just being dollars buried under the ground or buried in a pipeline or coming out of a refinery," she says. "It's like printed money. Imagine if in the middle of the night that you could just grab some metal tool and poke it into a pipeline where there is no security, drain out oil, put it into a truck, drive it somewhere, and become a millionaire in one day. So the incentive to steal or smuggle this oil and have it be a regular business is huge in a society where there are not good controls or security."
Jaffe, who is now the Director of Energy Studies for the Baker Institute at Rice University in Houston, says political and sectarian leaders now run Iraq's oil industry without oversight because the hurriedly passed constitution did not clearly define how to fairly divide up the country's mineral resources.
As a result, corruption has become embedded in Iraq's political system to a worse extent than during Saddam Hussein's regime, according to Jaffe. "Without oil meters and control systems, there is built up a whole black market. There are different groups that can control that flow," she says. "They can pay off politicians. They can pay off government officials and government inspectors. There are people inside the system now who are making personal, individual money, or their insurgency group or their political party is making money from corruption, from smuggling, from black market activities. So they are against instituting the kinds of procedures it would take to close all this down."
Prior to the U.S. invasion, an elaborate system of corruption for stealing oil already existed in Iraq to funnel money directly to Saddam through corruption of the U.N Oil for Food program. Last May, the House Government Reform Subcommittee on National Security heard testimony that the lack of functioning oil meters at the ABOT, which had been known as the Mina al-Bakr port, enabled the Iraqi government to smuggle oil by inspectors and to top off tankers with undocumented oil. A year after the U.S. invasion, the GAO estimated that from 1997 to 2002, the former Iraqi regime had misused the Food for Oil program to attain $10.1 billion in illegal revenues through kickbacks from oil sales and smuggling oil out of Iraq .
Jaffe says a cottage industry exists for redocumenting stolen oil cargo with phony bills of loading so that it can be sold into the market through corrupt brokers. "Many of the oil trading entities that helped Saddam in the days of oil for food could be seen loading oil in Iraq after the war. So there's no question that an enterprising individual, if there were not good control systems, which of course there were not after the war, could get those same players that were fooling the U.N. to set up similar systems to fool whoever is now in the Iraqi government to continue this corruption."
Morris suspects the Iraqis are now running a new kickback scheme by paying from $6 to $9 a barrel discounts to compensate buyers for the risk of bringing tankers into the troubled waters around the ABOT. Morris recommended that Iraq could lease its own tankers and turn profits in the millions of dollars by not having to pay the discounts. But his suggestion met stiff opposition. "I thought the discounts could possibly be a kickback. But there's no proof of that. I couldn't get access to any of the contracts. It could have been a kickback, but there was no way to verify it.”
The United States is now spending more than $10 million to replace the inoperable meters on the al Basrah Oil Terminal. It's the last stage of a $57.8 million overhaul of the terminal.
Overall, the United States is pumping $38 billion into infrastructure projects across Iraq. That includes spending $1.7 billion on 182 reconstruction projects to help improve Iraq's oil production infrastructure, refinery and export capacity. Yet Iraq's reported oil production remains below prewar levels.
Despite the Iraq Study Group's recommendation to install meters throughout Iraq's oil infrastructure, there are no plans to put meters anywhere else, according to the U.S. Army Corps of Engineers.
Jaffe says U.S. troops should have cordoned off secure "green zones" around the giant oil fields in southern Iraq, where it would have been easier and less expensive to produce oil and account for the revenue. "We had this very haphazard plan where pipeline projects were picked inside the Sunni Triangle. Why would you build an oil pipeline which is long and easy to blow up in a place where you have major parts of the insurgency?"
For example, Morris says pipelines for Iraq's refinery in Baiji, which is located north of Tikrit outside the apex of the Sunni Triangle, would be regularly blown up and parts of the refinery sabotaged in concert with insurgents to create fuel shortages in Baghdad. The regular disruptions at the refinery, operated by the state-owned North Refining Company, were designed to drive up the price of fuel on the black market. "They constantly work with insurgents to keep the fuel lines blown up and work with insurgents to keep fuel shortages in Baghdad. They also threaten the lives and families of refinery workers and fuel tank drivers. This refinery was corrupt during the Saddam days and needs to be seized by the Coalition Forces."
Morris recalls receiving an urgent plea for security assistance from a director general in Iraq's Oil Ministry in December of 2005. The Iraqi official warned that tanker truck drivers leaving the refinery were being threatened by insurgents. Morris says State Department officials declined to provide guards and accused him of overreacting. A few days later, the ambushes of tanker trucks started and remain unabated. Morris says it became clear that intelligence about tanker truck schedules was being fed to insurgents from the Oil Ministry.
In mid-January 2007, Iraqi Deputy Prime Minister Barham Saleh told a budget session of Parliament that the country was losing $1.5 billion to fuel smuggling from the Baiji refinery every year. "Most of this money goes to the terrorists, who target us and target our security," he said.
Last March, Morris received what he believed to be was a forged U.S. Army document from an Iraqi director general that accused specific officials in the Oil Ministry of corruption. The document alleged that Iraqi officials were creating fake invoices for construction work and the sale of petroleum products to the U.S. Army. Morris suspected that the allegations were true and recommended that the Iraqis seize the records so that the U.S. State Department could open an investigation. The next day, Morris says a fire mysteriously broke out in the Oil Ministry’s financial documents office and destroyed all of the financial documents in question.
Morris says that the U.S. was overwhelmed by corruption in Iraq's state-owned oil industry. "I got the impression that it was such a problem like the insurgency that no one knew the extent of it. No one really had a plan to come up with procedures or processes that deal with the problem."
By Robert Riggs
© MMVII, CBS Interactive Inc. All Rights Reserved.