The Looting of Iraq and Chalabi
Pasted from DailyKos
The looting of Iraq's oil begins? (w/ Chalabi cameo!)
by Rojo
Mon Nov 28, 2005 at 03:13:02 AM PDT
The recent trip to Washington by conman extraordinaire Ahmed Chalabi, in which he was embraced (although not on camera) by Vice President Cheney, Secretary of Defense Donald Rumsfeld, and Secretary of State Condi Rice, has been greeted by bewilderment by many across the blogosphere, wondering what the Bush administration could have to gain from still associating with a man blamed for conning the US into war (a lie, he merely provided the lies that the Bush administration was eagerly looking for) and being a cat's paw for Iran. The answer to this puzzle is quite simple and unsurprising. Disavowal of the appellation of Operation Iraqi Liberation notwithstanding, it is still spelled O.I.L. just like the war itself and relates directly to Chalabi's position as the head of the Iraq Energy Council.
More below...
Rojo's diary :: ::
Although neocon plans to install Chalabi as the executive of the country failed, the US may have achieved the primary goal of their association with Chalabi and the Iraq occupation in general, if the current trajectory of Iraqi politics continues to the "stay the course." Although of course any confident predictions remain at this point impossible.
A new report jointly published by PLATFORM, the Institute for Policy Studies, War on Want, the Global Policy Forum, Oil Change International, and the New Economics Foundation, called Crude Designs: The Rip-off of Iraq's Oil Wealth spells out the details. I would recommend reading the full 48 pages of the report here, but for those without the time, I summarize the crucial points below (although with my own preferences for organization and emphases imposed):
In the aftermath of World War I, as Iraq was occupied by the British under League of Nations mandate, a concession agreement was imposed upon Iraq in which British, French, and American oil companies were granted what amounted to ownership rights to Iraq's oil on decades-long non-negotiable terms that steered the vast majority of oil profits to the coffers of the oil companies to the detriment of Iraq; a type agreement that was replicated across the Middle East. As nationalist and anti-colonial movements gained traction over the decades, these concession contracts gave way to nationalizations of oil industries across the Middle East, with Iraq instituting its own nationalization in two stages in 1961 and 1972, eventually bringing the entirety of decisions of production and the collection of revenues under the aegis of the national government. After nationalization, Iraq's oil production advanced considerably, with the Iraq National Oil Company increasing production from 1.5 million to 3.7 barrels per day and the discovery of four "super-giant" and at least eight "giant" oil fields over the course of the 1970s.
Fast forward to 1999. Britain's North Sea fields and the US's Alaska fields are in decline and their is a palpable sense of urgency regarding future energy needs within both the American and British governments. Dick Cheney, head of the Halliburton corporation and soon to be Vice President of the United States, declares "While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies," adding, "Even though companies are anxious for greater access there, progress continues to be slow." His governmental Energy Task Force is later to proclaim that "The [Persian] Gulf will be a primary focus of of U.S. international energy policy." Similarly, a British Foreign Office strategy paper identified a key objective of British foreign policy as to "improve investment regimes and energy sector management in these regions [the Middle East, parts of Africa and the former Soviet Union], focusing on key links in the supply chain to the UK."
In July 2003, as part of the US-UK Energy Dialogue, itself only begun in April 2002, Bush and Blair establish a working group charged with conducting "a targeted study to examine the capital and investment needs of key Gulf countries." Unsurprisingly, both governments concluded that Iraq's oil industry required massive foreign direct investment. The form that FDI should take? The US State Department and important Iraqi figures in the successive governments of occupied Iraq had an answer: Production Sharing Agreements (PSAs).
While pure privatization of Iraq's oil was off the table, seeing as how the United states is the only country world where oil isn't the property of the state, and the concession contract of the past had been thoroughly discredited as a mechanism of colonial exploitation, PSAs can provide many of the benefits of both to corporate oil companies and the Anglo-American governments that would like to see control of oil production in the hands of companies based in their countries.
For oil companies, PSAs deliver:
A right to oil reserves. Companies want a deal that guarantees their right to extract the reserves for many years, thus ensuring their future growth and profits. Furthermore, they want a contract that allows them to `book' these reserves - including them in their accounts - which increases their company value. Production sharing agreements, like concession contracts, permit companies to book reserves in their accounts. The importance of this should not be underestimated for the oil majors. In 2004, when British/Dutch oil company Shell was found to have overstated the size of its `booked' reserves by over 20%, it lost the faith of the financial markets: this impacted heavily on its share price and credit rating. Shell is now desperate to acquire new reserves - which is a key reason why Shell has made more effort than most to make friends in Iraq.
An opportunity to make large profits. Generally, oil companies make their profits from investing and risking their capital. In some cases, they lose their capital, for example when they drill a `dry well'. But in some cases they will find large and hugely profitable fields. Oil companies are therefore very different from service companies like Halliburton, which make money from fixed fees on predictable contracts. Oil companies aim for deals which may be more speculative, but which give them a chance of making super-profits. Production sharing agreements are designed to allow companies to achieve very large profits if successful.
Predictability of tax and regulation. While companies can accept exploration risk (that they won't find oil) or price risk (that the oil price falls), both being beyond their control, they try to manage `political risk' (that tax or regulatory demands will increase) by locking in governments. They thus seek to bind governments into long-term contracts that fix the terms of their investment. Production sharing agreements generally last for 25 to 40 years with terms protected from potential change by incoming governments.
At every step in the construction of a "liberated" Iraq, PSAs have been pushed by the Anglo-Americeran controlled Coalition and by key allied figures in post-Saddam Iraqi governments. The process began with the "Oil and Energy" working group of the US State Department's Future of Iraq project, which included the involvement of future Iraqi Oil Minister Ibrahim Bar al-Uloum, among other Iraqi exiles and State Department-appointed "experts." The working group declared that Iraq's oil should be opened to international investors as soon as possible in the form of PSAs because the "Key attractions of production sharing agreements to private oil companies are that although the reserves are owned by the state, accounting procedures permit the companies to book the reserves in their accounts, but, other things being equal, the most important feature from the perspective of private oil companies is that the government take is defined in the terms of the [PSA] and the oil companies are therefore protected under a PSA from future adverse legislation" and because "PSAs can induce many billions of dollars of foreign direct investment into Iraq, but only with the right terms, conditions, regulatory framework, laws, oil industry structure and perceived attitude to foreign participation."
After the invasion, Paul Bremer's Coalition Provisional Authority appointed executives from Shell and ExxonMobil, later replaced by representatives of ConocoPhillips and BP, to positions tasked with addressing Iraq's short term oil infrastructure needs, as well as with the mission to "[b]egin planning for the restructuring of the Ministry of Oil to improve its efficiency and effectiveness [and to b]egin thinking through Iraq's strategy options for significantly increasing its production capacity." Within a matter of months, the Bremer-appointed Iraqi Oil Minister Ibrahim Bar al-Ulouhm announced that he favored PSAs, with preference given to American companies.
In June 2004, "sovereignty" was formally handed over to the Iraq interim governement, headed by former CIA-asset Ibrahim Allawi, and the Ministry of Oil handed over to former al-Ulouhm adviser and British-trained petroleum engineer Thamir al-Ghadban. Within three months, Allawi was to issue guidelines to Iraq's Supreme Council for Oil Policy stipulating that while currently producing oil fields would remain in the control of the Iraq National Oil Company, the remaining fields, estimated to constitute 64% of known reserves, would be developed by private companies under the negotiated contractual conditions of PSAs, among other conditions favorable to Western oil companies.
It seems that the early 2005 election of the Constituent Assembly and the process of writing the Iraqi Constitution has not represented a fundamental "turning point" in oil politics. Bar al-Uhlouhm reascended to the position of head of the Ministry of Oil and neoconservative favorite Ahmed Chalabi wormed his way into positions as Deputy Prime Minister and chair of the Iraq Energy Council, which replaced the Supreme Council for Oil Policy as the arbiter of Iraqi energy and oil policy. Reports are that plans for the 64% of not currently producing oil fields remain the same. In addition, constitutional clauses that command that oil and gas wealth must be developed "relying on the most modern techniques of market principles and encouraging investment" and possibly devolving the negotiating powers to the regions, rather than the national government, strengthen the hand of Western oil companies vis-a-vis Iraq.
Based on currently existing PSA agreements in Oman, Libya, and Russia (where the PSA agreements are so infamous that they are unlikely to be seen again), and a conservative estimated price of oil at forty dollars per barrel (the price is currently hovering around sixty dollars per barrel)the projected revenue loss to Iraq from PSA schemes stand at somewhere between 74 to 192 billion dollars. Again, that is a conservative estimate based on a cost per barrel of oil that is 20 dollars less than it is today and which doesn't take into account the possibility that an extremely weak Iraqi government or even weaker Iraqi regional governments might find themselves negotiating terms even worse than Oman, Libya, or Russia.
Further, the way PSAs are structured, they undermine any future efforts to exert democratic control over the future of Iraqi oil development or production:
They fix terms for 25-40 years, preventing future elected governments from changing the contract. Once a deal is signed, its terms are fixed. The contractual terms for the following decades will be based on the bargaining position and political balance that exists at the time of signing - a time when Iraq is still under military occupation and its governmental institutions are weak. In Iraq's case, this could mean that arguments about political and security risks in 2006 could land its people with a poor deal that long outlasts those risks and is completely unsuited to a potentially more stable and independent Iraq of the future.
Secondly, they deprive governments of control over the development of their oil industry. PSA contracts generally rule out government influence over oil production rates. As a result, Iraq would not be able to control the depletion rate of its oil resources - as an oil-dependent country, the depletion rate is absolutely key to Iraq's development strategy, but would be largely out of the government's control. Unable to hold back foreign companies' production rates, Iraq would also be likely to have difficulty complying with OPEC quotas which would harm Iraq's position within OPEC, and potentially the effectiveness of OPEC itself. The only way to avoid either of these two problems would be for Iraq to cut back production on the fields controlled by state-owned oil companies, reducing revenues to the state.
Thirdly, they generally over-ride any future legislation that compromises company profitability, effectively limiting the government's ability to regulate. One of the most worrying aspects of PSAs is that they often contain so-called `stabilisation clauses', which would immunise the 60-80% of the oil sector covered by PSAs from all future laws, regulations and government policies. Put simply, under PSAs future Iraqi governments would be prevented from changing tax rates or introducing stricter laws or regulations relating to labour standards, workplace safety, community relations, environment or other issues. One common way of doing this is for contracts to include clauses that allocate the 'risks' for such tax or legislative change to the state. In other words, if the Iraqis decided to change their legislation, they would have to pick up the bill themselves. The foreign oil company's profits are effectively guaranteed.
Fourthly, PSAs commonly specify that any disputes between the government and foreign companies are resolved not in national courts, but in international arbitration tribunals which will not consider the Iraqi public interest. Within these tribunals, such as those administered by the International Center for Settlement of Investment Disputes in Washington DC, or by the International Chamber of Commerce in Paris, disputes are generally heard by corporate lawyers and trade negotiators who will only consider the narrow commercial issues and who will disregard the wider body of Iraqi law. As the researcher Susan Leubuscher comments, "That system assigns the State the role of just another commercial partner, ensures that non-commercial issues will not be aired, and excludes representation and redress for populations affected by the wide-ranging powers granted [multinationals] under international contracts." They may also - especially if connected to bilateral investment treaties - make a foreign company's home state a party to any dispute, thus enabling that country to weigh in on the company's behalf.
end summary
There's lots more at the link I provided above.
Tags: Iraq, oil, Chalabi, energy, looting (all tags)
The looting of Iraq's oil begins? (w/ Chalabi cameo!)
by Rojo
Mon Nov 28, 2005 at 03:13:02 AM PDT
The recent trip to Washington by conman extraordinaire Ahmed Chalabi, in which he was embraced (although not on camera) by Vice President Cheney, Secretary of Defense Donald Rumsfeld, and Secretary of State Condi Rice, has been greeted by bewilderment by many across the blogosphere, wondering what the Bush administration could have to gain from still associating with a man blamed for conning the US into war (a lie, he merely provided the lies that the Bush administration was eagerly looking for) and being a cat's paw for Iran. The answer to this puzzle is quite simple and unsurprising. Disavowal of the appellation of Operation Iraqi Liberation notwithstanding, it is still spelled O.I.L. just like the war itself and relates directly to Chalabi's position as the head of the Iraq Energy Council.
More below...
Rojo's diary :: ::
Although neocon plans to install Chalabi as the executive of the country failed, the US may have achieved the primary goal of their association with Chalabi and the Iraq occupation in general, if the current trajectory of Iraqi politics continues to the "stay the course." Although of course any confident predictions remain at this point impossible.
A new report jointly published by PLATFORM, the Institute for Policy Studies, War on Want, the Global Policy Forum, Oil Change International, and the New Economics Foundation, called Crude Designs: The Rip-off of Iraq's Oil Wealth spells out the details. I would recommend reading the full 48 pages of the report here, but for those without the time, I summarize the crucial points below (although with my own preferences for organization and emphases imposed):
In the aftermath of World War I, as Iraq was occupied by the British under League of Nations mandate, a concession agreement was imposed upon Iraq in which British, French, and American oil companies were granted what amounted to ownership rights to Iraq's oil on decades-long non-negotiable terms that steered the vast majority of oil profits to the coffers of the oil companies to the detriment of Iraq; a type agreement that was replicated across the Middle East. As nationalist and anti-colonial movements gained traction over the decades, these concession contracts gave way to nationalizations of oil industries across the Middle East, with Iraq instituting its own nationalization in two stages in 1961 and 1972, eventually bringing the entirety of decisions of production and the collection of revenues under the aegis of the national government. After nationalization, Iraq's oil production advanced considerably, with the Iraq National Oil Company increasing production from 1.5 million to 3.7 barrels per day and the discovery of four "super-giant" and at least eight "giant" oil fields over the course of the 1970s.
Fast forward to 1999. Britain's North Sea fields and the US's Alaska fields are in decline and their is a palpable sense of urgency regarding future energy needs within both the American and British governments. Dick Cheney, head of the Halliburton corporation and soon to be Vice President of the United States, declares "While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies," adding, "Even though companies are anxious for greater access there, progress continues to be slow." His governmental Energy Task Force is later to proclaim that "The [Persian] Gulf will be a primary focus of of U.S. international energy policy." Similarly, a British Foreign Office strategy paper identified a key objective of British foreign policy as to "improve investment regimes and energy sector management in these regions [the Middle East, parts of Africa and the former Soviet Union], focusing on key links in the supply chain to the UK."
In July 2003, as part of the US-UK Energy Dialogue, itself only begun in April 2002, Bush and Blair establish a working group charged with conducting "a targeted study to examine the capital and investment needs of key Gulf countries." Unsurprisingly, both governments concluded that Iraq's oil industry required massive foreign direct investment. The form that FDI should take? The US State Department and important Iraqi figures in the successive governments of occupied Iraq had an answer: Production Sharing Agreements (PSAs).
While pure privatization of Iraq's oil was off the table, seeing as how the United states is the only country world where oil isn't the property of the state, and the concession contract of the past had been thoroughly discredited as a mechanism of colonial exploitation, PSAs can provide many of the benefits of both to corporate oil companies and the Anglo-American governments that would like to see control of oil production in the hands of companies based in their countries.
For oil companies, PSAs deliver:
A right to oil reserves. Companies want a deal that guarantees their right to extract the reserves for many years, thus ensuring their future growth and profits. Furthermore, they want a contract that allows them to `book' these reserves - including them in their accounts - which increases their company value. Production sharing agreements, like concession contracts, permit companies to book reserves in their accounts. The importance of this should not be underestimated for the oil majors. In 2004, when British/Dutch oil company Shell was found to have overstated the size of its `booked' reserves by over 20%, it lost the faith of the financial markets: this impacted heavily on its share price and credit rating. Shell is now desperate to acquire new reserves - which is a key reason why Shell has made more effort than most to make friends in Iraq.
An opportunity to make large profits. Generally, oil companies make their profits from investing and risking their capital. In some cases, they lose their capital, for example when they drill a `dry well'. But in some cases they will find large and hugely profitable fields. Oil companies are therefore very different from service companies like Halliburton, which make money from fixed fees on predictable contracts. Oil companies aim for deals which may be more speculative, but which give them a chance of making super-profits. Production sharing agreements are designed to allow companies to achieve very large profits if successful.
Predictability of tax and regulation. While companies can accept exploration risk (that they won't find oil) or price risk (that the oil price falls), both being beyond their control, they try to manage `political risk' (that tax or regulatory demands will increase) by locking in governments. They thus seek to bind governments into long-term contracts that fix the terms of their investment. Production sharing agreements generally last for 25 to 40 years with terms protected from potential change by incoming governments.
At every step in the construction of a "liberated" Iraq, PSAs have been pushed by the Anglo-Americeran controlled Coalition and by key allied figures in post-Saddam Iraqi governments. The process began with the "Oil and Energy" working group of the US State Department's Future of Iraq project, which included the involvement of future Iraqi Oil Minister Ibrahim Bar al-Uloum, among other Iraqi exiles and State Department-appointed "experts." The working group declared that Iraq's oil should be opened to international investors as soon as possible in the form of PSAs because the "Key attractions of production sharing agreements to private oil companies are that although the reserves are owned by the state, accounting procedures permit the companies to book the reserves in their accounts, but, other things being equal, the most important feature from the perspective of private oil companies is that the government take is defined in the terms of the [PSA] and the oil companies are therefore protected under a PSA from future adverse legislation" and because "PSAs can induce many billions of dollars of foreign direct investment into Iraq, but only with the right terms, conditions, regulatory framework, laws, oil industry structure and perceived attitude to foreign participation."
After the invasion, Paul Bremer's Coalition Provisional Authority appointed executives from Shell and ExxonMobil, later replaced by representatives of ConocoPhillips and BP, to positions tasked with addressing Iraq's short term oil infrastructure needs, as well as with the mission to "[b]egin planning for the restructuring of the Ministry of Oil to improve its efficiency and effectiveness [and to b]egin thinking through Iraq's strategy options for significantly increasing its production capacity." Within a matter of months, the Bremer-appointed Iraqi Oil Minister Ibrahim Bar al-Ulouhm announced that he favored PSAs, with preference given to American companies.
In June 2004, "sovereignty" was formally handed over to the Iraq interim governement, headed by former CIA-asset Ibrahim Allawi, and the Ministry of Oil handed over to former al-Ulouhm adviser and British-trained petroleum engineer Thamir al-Ghadban. Within three months, Allawi was to issue guidelines to Iraq's Supreme Council for Oil Policy stipulating that while currently producing oil fields would remain in the control of the Iraq National Oil Company, the remaining fields, estimated to constitute 64% of known reserves, would be developed by private companies under the negotiated contractual conditions of PSAs, among other conditions favorable to Western oil companies.
It seems that the early 2005 election of the Constituent Assembly and the process of writing the Iraqi Constitution has not represented a fundamental "turning point" in oil politics. Bar al-Uhlouhm reascended to the position of head of the Ministry of Oil and neoconservative favorite Ahmed Chalabi wormed his way into positions as Deputy Prime Minister and chair of the Iraq Energy Council, which replaced the Supreme Council for Oil Policy as the arbiter of Iraqi energy and oil policy. Reports are that plans for the 64% of not currently producing oil fields remain the same. In addition, constitutional clauses that command that oil and gas wealth must be developed "relying on the most modern techniques of market principles and encouraging investment" and possibly devolving the negotiating powers to the regions, rather than the national government, strengthen the hand of Western oil companies vis-a-vis Iraq.
Based on currently existing PSA agreements in Oman, Libya, and Russia (where the PSA agreements are so infamous that they are unlikely to be seen again), and a conservative estimated price of oil at forty dollars per barrel (the price is currently hovering around sixty dollars per barrel)the projected revenue loss to Iraq from PSA schemes stand at somewhere between 74 to 192 billion dollars. Again, that is a conservative estimate based on a cost per barrel of oil that is 20 dollars less than it is today and which doesn't take into account the possibility that an extremely weak Iraqi government or even weaker Iraqi regional governments might find themselves negotiating terms even worse than Oman, Libya, or Russia.
Further, the way PSAs are structured, they undermine any future efforts to exert democratic control over the future of Iraqi oil development or production:
They fix terms for 25-40 years, preventing future elected governments from changing the contract. Once a deal is signed, its terms are fixed. The contractual terms for the following decades will be based on the bargaining position and political balance that exists at the time of signing - a time when Iraq is still under military occupation and its governmental institutions are weak. In Iraq's case, this could mean that arguments about political and security risks in 2006 could land its people with a poor deal that long outlasts those risks and is completely unsuited to a potentially more stable and independent Iraq of the future.
Secondly, they deprive governments of control over the development of their oil industry. PSA contracts generally rule out government influence over oil production rates. As a result, Iraq would not be able to control the depletion rate of its oil resources - as an oil-dependent country, the depletion rate is absolutely key to Iraq's development strategy, but would be largely out of the government's control. Unable to hold back foreign companies' production rates, Iraq would also be likely to have difficulty complying with OPEC quotas which would harm Iraq's position within OPEC, and potentially the effectiveness of OPEC itself. The only way to avoid either of these two problems would be for Iraq to cut back production on the fields controlled by state-owned oil companies, reducing revenues to the state.
Thirdly, they generally over-ride any future legislation that compromises company profitability, effectively limiting the government's ability to regulate. One of the most worrying aspects of PSAs is that they often contain so-called `stabilisation clauses', which would immunise the 60-80% of the oil sector covered by PSAs from all future laws, regulations and government policies. Put simply, under PSAs future Iraqi governments would be prevented from changing tax rates or introducing stricter laws or regulations relating to labour standards, workplace safety, community relations, environment or other issues. One common way of doing this is for contracts to include clauses that allocate the 'risks' for such tax or legislative change to the state. In other words, if the Iraqis decided to change their legislation, they would have to pick up the bill themselves. The foreign oil company's profits are effectively guaranteed.
Fourthly, PSAs commonly specify that any disputes between the government and foreign companies are resolved not in national courts, but in international arbitration tribunals which will not consider the Iraqi public interest. Within these tribunals, such as those administered by the International Center for Settlement of Investment Disputes in Washington DC, or by the International Chamber of Commerce in Paris, disputes are generally heard by corporate lawyers and trade negotiators who will only consider the narrow commercial issues and who will disregard the wider body of Iraqi law. As the researcher Susan Leubuscher comments, "That system assigns the State the role of just another commercial partner, ensures that non-commercial issues will not be aired, and excludes representation and redress for populations affected by the wide-ranging powers granted [multinationals] under international contracts." They may also - especially if connected to bilateral investment treaties - make a foreign company's home state a party to any dispute, thus enabling that country to weigh in on the company's behalf.
end summary
There's lots more at the link I provided above.
Tags: Iraq, oil, Chalabi, energy, looting (all tags)
posted by Susan | 3:30 AM
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