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[casi] Iraq's other looting

Jul 11, 2003

Iraq's other looting

By Michael Renner

(Posted with permission from Foreign Policy in Focus)

Chaos and lawlessness have gripped large parts of Iraq following the
US-British invasion. The country's civilian population finds itself bereft
of jobs and even basic services. Museums, hospitals, universities, power
stations, water plants and telecommunication facilities have been stripped
bare by looters, leaving the country in dire straits. Several weeks after
the end of major fighting, ordinary Iraqis have seen little in the way of
benefits from whatever reconstruction is going on. Indeed, the focus of the
occupation regime is more on emergency repairs than on a major
rehabilitation of Iraq's dilapidated and war-destroyed public
infrastructure. (1)

Less visible than the pedestrian plundering afflicting Iraq's cities and
archeological treasures, another looting operation from on high is in the
works: the Bush administration has been moving with great alacrity to take
control of the major prize to be won in Iraq - strategic control over the
country's considerable oil wealth.

While the invaders tolerated the widespread ransacking, they moved swiftly
to secure the country's oil facilities. In Baghdad, the oil ministry was
heavily guarded and was thus spared the fate of other Iraqi ministries,
which went up in flames. But the occupiers' inconsistent attitude toward
looting has backfired: in the two months since the official end of the war,
general looting and sabotage have impeded even the oil industry, frustrating
efforts to quickly return oil production to prewar levels. (2)

It has become clear that there is a yawning gap between the Bush
administration's sharply focused war plans and the absence of workable
postwar plans. Post-Saddam Hussein Iraq is caught in the twilight of an
occupation veering between high imperial purpose and profit-making impulses.
Symptoms of crony capitalism - championing privatization schemes and
rewarding corporations closely connected to the George W Bush team with
reconstruction contracts - collide with strategic visions of remaking Iraq
in the US image. And the sobering reality of unrelenting chaos that has
engulfed much of the country may well unravel Washington's ambitions to
present a remade Iraq as an irresistible political and economic model for
the rest of the Middle East and to use this new asset to reinforce US
leverage over the world oil market.

Legitimizing conquest
The Bush administration was eager to have its occupation of Iraq legitimized
by the United Nations. However, it first had to ensure that the
international body - legally in charge of Iraqi oil sales under the
sanctions regime - was effectively sidelined and tasked primarily with
humanitarian issues.

The desired UN imprimatur came in late May, when the Security Council
approved a resolution drafted by the US government with British and Spanish
support. Although leading war opponents - France, Germany and Russia - made
much of several concessions that altered an initial draft, Washington and
London essentially got what they wanted. (3)

Reluctant to continue confronting the Bush administration and afraid that
they would be depicted as obstructionists harming ordinary Iraqis'
interests, the war opponents caved in. But hidden "carrots" were also used
to marshal their consent: under the Security Council resolution, the
UN-administered "oil for food" program will run for another six months,
permitting several billion dollars worth of contracts - initialed but not
operational at the time of the invasion - to be consummated. A large share
of this business involves Russian, French and Chinese firms.

The Security Council resolution lifts the sanctions imposed on Iraq in 1990
(with the exception of arms-related provisions) and gives the occupiers
(dubbed "the Authority" in the resolution) sweeping powers. The Authority
will have broad control over the Iraqi oil industry, principally by means of
a development fund for Iraq, into which all of Iraq's oil export revenues,
all funds left over from the UN's "oil for food" program and all assets of
the former Iraqi government located anywhere in the world are to be
transferred. (4)

The Authority is vested with the sole decisionmaking power over the use of
these revenues (leaving a yet-to-be-created Iraqi interim administration
with no more than "consultation" rights). The resolution bars any legal
challenges by rival claimants to Iraq's oil revenues until December 2007.
But since the initial draft of the resolution mentioned no time limit at
all, the 2007 date was characterized as a "critical concession" by the
United States. (5)

The initial draft empowered the Authority for one year, but specified an
automatic extension "to continue thereafter as necessary, unless the UN
Security Council decides otherwise" (6) - meaning that the US and Britain
could have vetoed any effort to terminate their self-awarded mandate. The
final resolution provides for a review by the Security Council after one
year but still does not require an explicit reauthorization of the
occupation regime. (7) Without a timetable for establishing a legitimate
government, the occupation - and control over Iraqi oil - is essentially

Open for business
Most of the individuals assembled under L Paul Bremer to run the occupation
regime lack the kind of expertise in reconstruction, nation-building and
humanitarian assistance that Iraq so badly needs. Closely linked to US
corporate interests, they are instead primed to streamline the privatization
of the Iraqi economy. (8) For example, Gary Vogler, a former ExxonMobil
executive, is the newly minted senior adviser to the oil ministry. (9) And
Dan Amstutz, a former executive of Cargill and well-equipped to represent
the commercial interests of US grain companies, has been pegged as the point
man for agricultural reconstruction. (10)

The Wall Street Journal reported on May 1 that beginning in February 2003 -
well before the start of the war - the Bush administration had drafted
"sweeping plans to remake Iraq's economy in the US image". Detailed planning
for such a makeover will apparently be left to a range of US financial
consulting firms (including BearingPoint, Booz Allen Hamilton, Deloitte
Touche Tohmatsu, and PricewaterhouseCoopers). (11)

The plan envisions asset sales, private concessions, leases and management
contracts across the Iraqi economy, including the oil industry. It foresees
that the first year would be spent building consensus for privatization, to
be followed by asset transfers over a three-year period. (12) The Wall
Street Journal article compares the program to what was done in Russia, but
does not mention the corruption, massive job loss and gaping inequality that
ensued during the Russian makeover.

Calling the shots in the oil industry is Philip Carroll, who was named on
May 4 to head an advisory board to the Iraqi oil ministry. (13) Carroll was
chief executive officer of Shell Oil, the US arm of Royal Dutch/Shell in the
1990s, and subsequently became head of the construction giant Fluor, a
company he ran until 2002. (14) Carroll still owns substantial stock in both
of these corporations. (15) He is not known as an Iraq oil specialist and
apparently had never been to the country prior to his appointment.

An innocent observer may well wonder why Carroll was chosen when Iraqi
nationals presumably have much better insights about the requirements of
getting Iraq's oil industry back on its feet. The answer lies in the
difference between a disinterested rebuilding program and an effort to
establish foreign control, as suggested by Raad Alkadiri, a director at PFC
Energy in Washington, DC, when he said, "But the bottom line is [that]
bringing in people from the outside gives you a better chance of controlling
the oil sector, even directly." (16)

The Halliburton empire
A bounty of postwar reconstruction contracts is being awarded to a closely
drawn circle of politically well-connected US corporations. Halliburton,
Bechtel and Fluor are companies that have generously supported Republican
politicians and whose executives are no strangers to the revolving door
connecting government and corporate jobs. (17)

Perhaps no company is better connected than Halliburton - the oil services
and construction firm that Dick Cheney headed from 1995 to 2000 before
running for vice president. Halliburton's government contracting business
surged under Cheney in the 1990s, and it surged again in the wake of the
September 11, 2001, attacks. (18) Prior to the invasion, the company had
completed a classified study for the Pentagon, assessing the state of the
Iraqi oil industry and how to revive it after the war. (19) In early March,
the Army Corps of Engineers secretly awarded Kellogg, Brown & Root (KBR, a
Halliburton subsidiary) a no-bid contract to fight oil well fires and make
emergency repairs. (20) Persistent probing by Congressman Henry Waxman
brought to light that the company was also given a far more lucrative, and
somewhat open-ended, role in running Iraq's oil facilities and in
distribution of petroleum products. The contract has an overall ceiling of
$7 billion but is expected to yield a maximum of $800 million for KBR, given
that it is to be opened to bidding later in 2003. (21) The secret deal was
apparently struck as early as November 2002 - at a time when the
administration insisted that no decision had yet been made to go to war.

KBR is also making money in other ways, including a $36 million contract to
rebuild and operate Camp Arifjan (a US Army base in Kuwait), a $28 million
program to build and maintain prisoner-of-war camps, and a $62 million
undertaking to feed and house troops in Iraq. These projects are carried out
in the context of an exclusive US Army contract awarded in December 2001,
under which the company provides a broad range of logistical services to
army troops deployed outside the United States. With the mushrooming of US
military bases in the past two years, Halliburton has set up shop in
Afghanistan, Uzbekistan, Djibouti, Cuba (Guantanamo Bay) and now Iraq. The
2001 contract - the Logistics Civil Augmentation Program or Logcap in
Pentagon-lingo - spans a decade and has no cost cap. Because the company
receives a set percentage of its contract-related expenses, it has an
incentive to bill more in order to maximize profits. (23)

What merits such generosity? Perhaps it has nothing to do with the fact that
Dick Cheney used to be the Halliburton CEO. (Although Cheney sold his
Halliburton stock when he left the company to run for vice president, he
still receives annual deferred compensation payments until 2005. (24)
Perhaps it's irrelevant that Joe Lopez, a military aide to Cheney when he
was defense secretary in the early 1990s and who was subsequently hired by
Halliburton at Cheney's suggestion, is in charge of KBR's Pentagon
contracts. (25) After all, the vice president's office and Halliburton
spokespeople strenuously deny that any favoritism is involved in the
awarding of these contracts.

Halliburton may be qualified for the job, but its performance has not
exactly been free of blemish. The December 2001 contract was awarded even
though KBR had been sued for overbilling the army between 1995 and 1997,
allegedly to the tune of $6 million. The company paid $2 million to settle
but did not admit any wrongdoing. (26) There have been other irregularities
as well. Among them are allegations that the company overcharged the army
for support operations for troops deployed in Bosnia, a deal worth $3
billion so far. (27) And in 2002, Halliburton was investigated by the
Securities and Exchange Commission for alleged accounting improprieties
during Cheney's tenure. (28)

The political and commercial fates of Dick Cheney, Halliburton and Iraq have
repeatedly intersected. As defense secretary in the first Bush
administration, Cheney directed the 1991 Gulf War. He also initiated the
policy to make much greater use of private contractors in running military
bases. This practice is now a major profit center for Halliburton. After the
war - Cheney took the CEO job after Bush Senior lost his re-election bid -
Halliburton made money by selling oilfield supplies to Iraq and helping it
to repair some of the war damage incurred due to US bombing. (29) As George
W Bush's vice president, Cheney was a major player in drumming up support
for the recently concluded war, and now his former company again stands to
benefit handsomely from the carnage in Iraq.

The future of Iraq's oil
Following a quarter century of wars and international sanctions, Iraq's oil
industry is dilapidated and in need of extensive rehabilitation. Halliburton
and others are set to make a killing on related work. But beyond
reconstruction, a big outstanding question concerns Iraq's longer-term oil
development. How much will Iraqi production capacity expand in coming years?
Who will decide? Will there be a big role for foreign multinationals,
bringing 30 years of state control to an end?

Iraqi oil - plentiful, of high quality, cheap to produce - is indeed a major
prize for any oil company. Although many companies continue to explore for
oil in far-flung places, often under forbidding physical conditions, the
Middle East harbors most of the world's remaining oil. In the 1960s, the
world oil industry discovered an average of 47 billion barrels per year. But
as companies concentrated their search outside the Middle East (in response
to nationalization in most Organization of Petroleum Exporting Countries
(OPEC) countries), the annual rate of discovery plummeted to 35 billion
barrels in the 1970s, 24 billion in the 1980s, and a mere 14 billion in the
1990s. (30) Against the background of ever-rising demand, there is simply no
avoiding the Middle East.

Assuming a significant role for foreign companies - which is what Philip
Carroll and others have indicated (31) - who will get preferential access to
Iraq's riches? To what extent will existing contracts concluded by Russian,
French and Chinese companies with Saddam's regime be upheld? Before the war,
there were thinly veiled threats that companies whose home governments
refused to support an invasion would be shown the door. By implication, the
big winners in such a reshuffling were to be the US and British companies -
ExxonMobil, Chevron-Texaco, BP, Shell - which were left out in the cold by
the nationalization of 1972.

It's possible that the Russians, French and others will not be entirely
excluded, if only to induce them to accept and legitimate the new masters of
Iraq. But the manner in which the reconstruction contracts have been handled
to date suggests a winner-take-all attitude in Washington. In a recent
interview, Philip Carroll hinted again that contracts signed with Saddam's
regime may be voided or subject to renegotiation. (32)

As of early July, the future of Iraq's oil is still a matter of speculation.
In the first place, rehabilitating oil facilities and preparing the ground
for an expansion of output will take time. Current projections are that
because of widespread looting, it will take 18 months just to return to
prewar production levels of 3 million barrels per day. (33) So it's not
surprising that no concessions have been awarded and no contracts have been
negotiated so far.

A two-pillar strategy?
Both Iraq's desperate need for revenue and the Bush administration's energy
policy preferences point to a future in which Iraq's immense petroleum
deposits will be far more fully exploited than at any time in the past. But
there is the sticky question of Iraq's future status within OPEC.

Unrestrained Iraqi oil production would undermine OPEC's ability to set oil
prices and might even trigger a price war among member countries. Though
some have argued for pulling Iraq out of OPEC, several rounds of talks
between the State Department and exiled Iraqi oil experts reportedly
generated broad consensus that Iraq should remain an OPEC member but be
exempt from the organization's quota restrictions. This option is also
favored by Philip Carroll. (34)

A weakened OPEC and lower oil prices would not be unwelcomed by the Bush
White House. After all, cheap oil is an essential ingredient of the
administration's energy policy, which foresees virtually unrestrained growth
of US oil consumption, as spelled out in Dick Cheney's 2001 task force
report. (35)

But there are other considerations that may yet win the day. If oil prices
dip too low, large segments of US oil production will be rendered
uncompetitive. This outcome may be less of a concern for the large
multinationals, but it is of critical interest to domestic oil producers,
which form an important part of George Bush's power base. Very low prices
could also trigger greater political instability among oil producing nations
in the Middle East, potentially undermining US allies in the region.

In the end, US economic interests require oil prices that are low but not
too low and an avoidance of wild price swings. Saudi Arabia has long played
a key role in this regard - ensuring stability by making up for any
shortfalls in output elsewhere in the world and by paring back its own
production when supply gluts threaten to drive prices into the ground.

But in the aftermath of September 11, there are indications that Saudi
Arabia may no longer be as politically reliable as was once the case. It is
in this context that a boost in Iraqi oil production is critical. Then,
instead of exclusively relying on Riyadh, Washington could erect Iraq as an
alternate pillar helping to shore up US dominance of the oil-rich Middle
East and ensuring US access to oil on favorable terms.

For such visions to become reality, however, Iraq needs to be pacified. The
upheaval following the overthrow of Saddam suggests that it's far from a
foregone conclusion that the occupation regime will be able to govern Iraq
and bend the country to Washington's designs. The privatization of Iraq's
oil may yet derail, if the occupation regime finds itself unable to provide
a sufficiently secure and stable investment environment. It would be an
ironic outcome if the very triumph of Donald Rumsfeld's war doctrine -
reliance on "smart" weapons and fewer soldiers to achieve victory - also
meant that there simply weren't enough occupation forces to pacify Iraq.

Although the Bush administration was exceedingly well prepared in its drive
toward war, it apparently has given far less thought to maintaining order in
the conflict's aftermath.


(1) Edmund L Andrews, "US Focus in Iraq Is on Repairs, Not Building", New
York Times, June 20, 2003.

(2) Edmund L Andrews, "Iraqi Smugglers Are Brazen and Don't Stop at Oil,"
and Neela Banerjee, "Barrels of Oil Exported for the First Time Since the
War," both in New York Times, June 23, 2003.
(3) Felicity Barringer, "Security Council Almost Unanimously Approves Broad
Mandate for Allies in Iraq," New York Times, May 23, 2003.

(4) The approved text can be found in: United Nations Security Council,
"Spain, United Kingdom of Great Britain and Northern Ireland and United
States of America: Draft Resolution," S/2003/556, May 21, 2003.

(5) Ibid; Colum Lynch, "US Proposes Broader Control of Iraqi Oil, Funds,"
Washington Post, May 9, 2003; "US-UK-Spain Revised Draft Resolution on
Post-War Iraq," Global Policy Forum

(6) "US-UK-Spain Revised Draft Resolution on Post-War Iraq," Global Policy

(7) United Nations Security Council, "Spain, United Kingdom of Great Britain
and Northern Ireland and United States of America: Draft Resolution,"
S/2003/556, May 21, 2003.

(8) Edmund L Andrews, "Overseer in Iraq Vows to Sell Off Government-Owned
Companies," New York Times, June 23, 2003.

(9) Donald L Barlett and James B Steele, "Iraq's Crude Awakening," Time, May
10, 2003

(10) The Transnational Foundation (Sweden.

(11) Neil King, Jr, "Bush Officials Devise a Broad Plan for Free-Market
Economy in Iraq," Wall Street Journal, May 1, 2003.

(12) Ibid.

(13) Neela Banerjee, "3 Get Top Posts to Revive Iraqi Oil Flow," New York
Times, May 4, 2003.

(14) Neela Banerjee, "Shell Veteran in Line for Iraq Oil Post," New York
Times, April 3, 2003.

(15) Peter S Goodman, "US Advisor Says Iraq May Break with OPEC," Washington
Post, May 17, 2003.

(16) Neela Banerjee, "Oil Experts Say US Hasn't Come to Grips with Blueprint
for Industry," New York Times, April 23, 2003.

(17) Danny Penman, "US Firms Set for Postwar Contracts," The Guardian, March
11, 2003; Sheryl Fred, "Postwar Profiteers",; Robert Bryce and
Julian Borger, "Cheney Is Still Paid by Pentagon Contractor", The Guardian,
March 12, 2003.

(18) Dan Baum, "Nation Builders for Hire," New York Times Magazine, June 22,

(19) Mark Fineman, "Getting Iraq's Oil Pumping Again," Los Angeles Times,
April 22, 2003.

(20) Edward Epstein, "Firm Linked to Cheney Wins Oil-Field Contract," San
Francisco Chronicle, March 8, 2003.

(21) US Army Corps of Engineers, "DoD Mission for Repair and Continuity of
Operations of the Iraqi Oil Infrastructure,"; Mark Fineman, "Halliburton
Unit's Bill for Iraq Work Mounts," Los Angeles Times, May 9, 2003; Edward
Epstein, "Congress Curious About Iraq Deals," San Francisco Chronicle, May
20, 2003.

(22) Jason Leopold, "Defense Dept Secretly Tapped Halliburton Unit to
Operate Iraq's Oil Industry," ZNet, May 13, 2003, as reposted on Global
Policy Forum

(23) Lisa Myers and NBC News investigative team, "Halliburton Cash Registers
Ring in Iraq,", May 3, 2003.

(24) Robert Bryce and Julian Borger, "Cheney Is Still Paid by Pentagon
Contractor," The Guardian, March 12, 2003.

(25) Jeff Gerth and Don Van Natta, Jr, "In Tough Times, a Company Finds
Profit in Terror War," New York Times, July 13, 2002.

(26) Keith Ashdown, "Hail to the Chief Executive Officer," The Waste Basket
(Taxpayers for Common Sense), August 9, 2002.

(27) "Halliburton Unit Got Exclusive Military Bid," CBS, August 4,

(28) Farhad Manjoo, "War Inc,", March 17, 2003.

(29) Greater use of private contractors and Halliburton sales to Iraq from
Dan Baum, "Nation Builders for Hire," New York Times Magazine, June 22,

(30) "Oil War," BBC, March 26, 2003, as reposted in Global Policy Forum

(31) Peter S Goodman, "US Advisor Says Iraq May Break With OPEC," Washington
Post, May 17, 2003.

(32) Ibid.

(33) Neela Banerjee, "Barrels of Oil Exported for the First Time Since the
War," New York Times, June 23, 2003.

(34) Carola Hoyos, "Exiles Call for Iraq to Let in Oil Companies," Financial
Times, April 7, 2003; Peter S Goodman, "US Advisor Says Iraq May Break with
OPEC," Washington Post, May 17, 2003.

(35) National Energy Policy Development Group, Reliable, Affordable, and
Environmentally Sound Energy for America's Future (Washington: US Government
Printing Office, May 2001).

Michael Renner is a senior researcher at Worldwatch Institute and a policy
analyst for Foreign Policy In Focus.

(Posted with permission from Foreign Policy in Focus)

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