Who Controls Iraq’s Oil?

Ten years on from the invasion, it is not the Americans

by Gordon Campbell

On the eve of the invasion of Iraq, it was said to be all about oil. Saddam was just the excuse. The conspiracy theory said the US wanted to get its hands on one of the biggest oil and gas deposits in the world, for the benefit of Dick Cheney and his oil industry friends in Houston. If that was the intention – and it certainly was part of the White House self funding plan that profits from Iraqi oil would be used to offset some of America’s costs for the invasion – it has been a spectacular failure. By accident or design, the control of Iraq’s oil is still very much in Iraqi hands. Like most things in Iraq over the past ten years though, it hasn’t been a pretty story.

Any way you measure them, Iraq’s oil and gas reserves are a fabulous treasure. Here’s how the BBC recently painted the picture:

Iraq is the world’s third largest oil exporter, behind Saudi Arabia and Russia, and is expected to produce 3.6 million barrels of oil per day during 2013. Output before the US-led invasion was about 2.8 million barrels a day. The country stands to earn almost $5 trillion in revenues from oil export by 2035, an average of $200bn a year, according to the International Energy Agency (IEA).

Leave aside for a moment the question of which Iraqis – and which Kurds – currently benefit from the oil revenues. Back in 2003, as Glenn Greenwald recently documented in the Guardian, oil was definitely on the White House invasion agenda.

In terms of the original conspiracy theory though, the most interesting outcome has been that very little of the Iraqi oil has come under the control of US and other Western oil companies. A few weeks ago, the Financial Times pointed this out in its recent report on the Iraq oil industry:

When Iraq held its first postwar oil licensing round in June 2009, groups like ExxonMobil, Royal Dutch Shell and BP flocked to Baghdad for what was one of the most eagerly anticipated events in the oil industry calendar.

At the fourth round last May, none of them bid. The poor attendance epitomises a general disenchantment with Iraq’s oil sector. The country was once the hottest ticket in global energy. But the widely predicted bonanza for western oil companies in postwar Iraq has failed to materialise. Political instability, poor contractual terms and infrastructure bottlenecks have sharply reduced the country’s appeal to Big Oil. Many companies have shifted their attention from the south to the semi-autonomous Kurdistan region, angering Baghdad“People say that the Iraq war was fought over oil,” says Robin Mills of Dubai-based Manaar Energy Consulting. “But American companies are now almost absent from the Iraqi upstream scene.”

It is a deadly irony. Apparently, the political instability and violence set in motion by the invasion has effectively torpedoed the West’s plans to exploit Iraq’s natural wealth. The same instability has affected the repair of Iraq’s oil infrastructure, further impeding the rate of extraction. For 2017/2020, production targets are being scaled back to 9 million barrels a day, down from earlier, more optimistic estimates of 12 million barrels per day by that date. A further explanation for the hesitancy felt by foreign investors is the foggy legal status of the ownership and extraction rights and conditions. Basic questions of who owns the oil – regional governments, central government, and in what proportions? – remain to be settled by the Iraqi Parliament. Passing a law seems too hard, too explosive a project. As a result, even joint venture investment by foreign companies can be a risky undertaking.

If that hesitancy to invest characterises Iraq as a whole, it is somewhat less the case in the semi-independent region of Iraqi Kurdistan where – as the Financial Times reports “ The Kurdish regional government has signed 50 deals with foreign oil companies, including Exxon, Chevron, Total SA and Russia’s Gazprom Neft. Officials there want to raise production from about 200,000 barrels a day now to 1m b/d by 2015.”

Valuable, but still small potatoes. The vast wealth potential of Iraq’s wider oil and gas reserves remain relatively untouched. While Iraqis still do largely control what oil is being extracted, the benefits are not trickling down the social ladder. Pakistan’s Dawn newspaper for instance published an AFP article in late March under the downbeat headline “Iraq’s People Yet To Feel Benefit Of Oil Boom.” One reason for that is because the violence and political instability preclude the development of the service sectors on which middle class jobs and income growth can be built. Yet here’s the final, devastating irony: the main foreign beneficiary of oil industry development in Iraq seems likely to be China, not the United States. The Financial Times, again :

According to the International Energy Agency, a quarter of Iraqi oil, about 2m barrels a day, will be heading for China by 2035. “A new trade axis is being formed between Baghdad and Beijing,” said Fatih Birol, the IEA’s chief economist….But ultimately, the winner of the past decade has been the Iraqi state. The IEA predicts Baghdad stands to gain almost $5tn in revenues from oil exports to 2035 – offering a “transformative opportunity” for the economy. “It has secured a tremendous amount of investment and international help to develop its energy sector while giving away very little,” says PFC Energy’s Mr Alkadiri. “The Iraqis are well and truly in control of their own oil industry.”

China? How did that happen? It looks like another disaster for the Americans. Ten years on, we know the reasons for the Iraq war were far more incoherent than the original conspiracy theory had suggested. The March 20, 2003 invasion turns out to have been born out of a mix of political opportunism, willing credulity among the Bush administration at what it was being fed by Iraqi exiles, neo-liberal delusions of imperial grandeur, an irrational obsession with Saddam Hussein, psychological issues between Bush pere and Bush fils – and somewhere in there, Dick Cheney’s abiding interest in oil.

Subsequently, the invasion has killed and maimed hundreds of thousands of Iraqis, sent millions sent into exile, taking with them the skills and education that will take generations to replace. Women in particular have lost social and educational opportunities amid the rise of religious fundamentalismn abd –reportedly – thousands of widows have been rendered vulnerable to sexual exploitation and prostitution.

To the Americans, the likely financial cost has been estimated in the region of $2 trillion, vastly in excess of the fifty or sixty billion that was confidently projected on the eve of the invasion. And, it seems, China is now positioned to be the main foreign beneficiary of Iraq’s oil bonanza. What Dick Cheney and George Bush have wrought at the cost of vast amounts of American and Iraqi blood and wealth is the provision of energy security for its only rival as a 21st century superpower.

Add that to the domestic chaos that the legacy of the Bush-era tax cuts continue to wreak on the American economy, and one can readily regard the Bush presidency as a curse upon the planet.