History of the Iraq War, Part X: Oil Contracts at Gunpoint

The first foreign oil contract was signed in 2004. The salient fact is that this contract was signed by the semi-autonomous Kurdistan Regional Government (KRG) with a little-known Norwegian company (Muttit, 2011, p. 127). The parties to this contract, brokered clandestinely by American diplomat Peter Galbraith, may indicate why the larger oil companies chose not to participate.  The Iraqi national government has declared such contracts unconstitutional under a 1967 law requiring parliamentary approval for any oil contracts. Any company signing an oil contract with the KRG is banned from operating in the rest of the country (O’Sullivan, 2011, p. 11). [Interestingly, the author of this paper, Meghan O’Sullivan, worked as head of Iraq policy at the National Security Council. After her resignation, she signed a contract to consult with Hess executives on oil policy and Hess signed an oil contract with KRG (Coll, 2012, pp. 568-571).]  No firms partaking in such contracts have been prosecuted (Coll, 2012, p. 569).

Instead, many oil companies chose to sign bilateral contracts with the national Iraqi government to provide relatively modest services along the lines of those initially opposed by Bremer, who favored more drastic steps toward full privatization. Chevron signed the first, in June 2004, in order to provide technical assistance on the extraction of oil from previously undeveloped fields. Unlike the naked privatization schemes proposed by Bremer, Allawi (Schwartz, 2008, p. 60) and others, there may have been some benefits to the Iraqi people from such agreements, since Iraqi technology was far behind global advances due to years of war and sanctions (Yergin, 2011, pp. 151-152). Within a year, roughly thirty oil companies had jointly signed a relatively modest – and legal – contracts to provide training worth about $20 million to Iraqis (Coll, 2012, p. 563), which had the mutual benefit of allowing seismic exploration and other intelligence gathering. Unlike larger contracts, there was little to lose if the Iraqi government collapsed (Muttit, 2011, pp. 144-145).

As larger privatization ploys failed, the US turned to structural adjustment under the auspices of ‘debt relief.’ Of course, the IMF faced the same resistance that the CPA and the later American puppet government had. Due to the dual prongs of union resistance in the south and violent resistance in the non-Kurdish north, rewriting Iraq’s oil laws proceeded at what, to the oil companies, must have seemed like an exceedingly slow pace (Schwartz, 2008, pp. 61-67). The Iraqi government ultimately signed a series of contracts with the IMF with the conditions that the Iraqi oil sector move towards privatization (see “The IMF in Iraq”).

An eerily similar agreement, the International Compact for Iraq, was reached at the United Nations in 2007. In exchange for debt relief and a $2.5 billion loan from the World Bank, the Iraqi government agreed to develop an oil law favorable to foreign direct investment. As if the Mafioso implications were not clear enough, sources in al-Maliki’s office reported that the US threatened to withdraw support for his status as prime minister if he refused to pass such an agreement. The message was reinforced by a US Congressional resolution calling for passage of an amenable oil law (Muttitt, 2011, pp. 243-246).

Yet progress on an oil law continued to stall, thanks to resistance from virtually all levels of Iraqi society, including parliament. Perhaps drawing conclusions from the prior successful manipulation of al-Maliki, General Ray Odierno, commander of US forces in Iraq, issued a warning that, if Iraqis continued to prevent their national wealth from being stolen, the Americans would implode the entire Iraqi government. Reflecting the dependency that had been created over the past five years, these measures included:

"An end to $6.3 billion in aid and $10 billion a year in arms sales. The US would also stop sharing intelligence, providing air defence [sic], protecting the coast and oil export terminals, guarding the borders and training the military. It would no longer maintain the military hardware it had supplied, nor provide secure air transit to Iraqi officials. It would stop operating air traffic control and thereby close down Iraqi airspace. It would not hand over the Iraqi prisoners it held, and it would stop employing 200,000 Iraqis."

The agreement to auction off oil fields and remove US troops was signed within one month (Muttitt, 2011, pp. 290-291).

With the threat and use of force to create a pliant government and make a formerly self-sufficient economy utterly reliant on outsiders, the stage had been set for contracts to be signed with the oil giants. In symbolism indicative of the haughtiness and contempt of the war’s architects, the first non-Kurdish oilfields went up for auction on June 29, 2009 (International Resource Journal, 2009), the very day that American combat troops officially withdrew from Iraqi cities in accordance with the Status of Forces agreement (Rubin, 2009). This day also marked the first time ExxonMobil employees had entered the country since before the invasion, having preferred to meet with Iraqi officials outside of Iraq (Coll, 2012, p. 558).

In the auctions held since 2008, oil companies have made out like robber barons, though not quite as handsomely as they would have liked. Baker, Ismael, & Ismael (2010, p. 19) quote a study from Oil and Gas Journal to the effect that “Western oil companies estimate that they can produce a barrel of Iraqi oil for less than $US 1.50 and possibly as little as $US 1.’” The oil giants, on the other hand, offered initial bids of at least $4 and settled them at approximately $2 per barrel of pure profit (Muttitt, 2009, p. 4). For just one oil field, this could mean estimated profits of tens of billions of dollars and a 19 percent return on investment, according to Deutsche Bank. Furthermore, this oil can be booked on the companies’ reserve sheets, boosting the favored measure for oil company SEC and investor filings, and revenue to pay Kuwaiti reparations will not be scraped off the top (Coll, 2012, p. 574). As of the date of this writing, sixty percent of Iraq’s oil reserves have been sold. Such terms will lead to an estimated $74 to $194 billion in revenue for multinational corporations over the contracts’ twenty-year lifespan (Muttitt, 2009, p. 4). As if this weren’t enough, the American government invested $4 billion of taxpayer money to reconstruct Iraq’s oil sector. By 2010, this oil was flowing to supertankers on the Persian Gulf (Coll, 2012, pp. 559, 575). This would seem less egregious than full privatization but is missing the larger picture :the oil companies had met all of their objectives.

An oft-repeated point, particularly by apologists for American state violence, is that American interests did not win or even bid on contracts to drill most of Iraq’s oil fields (Walt, 2009). This is correct but misleading. American or British partnerships won the rights to four of the five largest fields in Iraq, with the lone exception being Russia and Norway’s contract on the West Qurna-2 field, the third-largest in Iraq (Halperin, 2011, p. 213-214). In addition to siphoning off Iraqi oil profits for foreign oil corporations, the occupation also expropriated petrodollars directly, as discussed in later posts.


Baker, Raymond, Shereen Ismael and Tareq Ismael (ed.). 2010. Cultural Cleansing in Iraq: Why Museums Were Looted, Libraries Burned and Academics Murdered. Pluto Press.

Coll, Steve. 2012. Private Empire: ExxonMobil and American Power. Penguin Press.

Halperin, Sandra. 2011. “The Political Economy of Anglo-American War: The Case of Iraq.” International Politics 48(2/3), pp. 207-228.

International Resource Journal. 2009. “Iraq Oil Auctions.” http://www.internationalresourcejournal.com/features/oct09_features/iraq_oil_auctions.html. 

Muttitt, Greg. 2011. Fuel on the Fire: Oil and Politics in Occupied Iraq. Bodley Head: Random House.

O’Sullivan, Meghan. 2011. “Iraqi Politics and Implications for Oil and Energy.” Harvard Kennedy School Faculty Research Working Paper Series.

Rubin, Alissa J. July 1, 2009. “Iraq Marks Withdrawal of US Troops from Cities.” New York Times.

Schwartz, Michael. 2008. War without End: The Iraq War in Context. Haymarket Books.

Walt, Vivienne. December 19, 2009. “US Companies Shut Out as Iraq Auctions Its Oil Fields.” Time Magazine.

Yergin, Daniel. 2011. The Quest: Energy, Security, and the Remaking of the Modern World. Penguin Press.

No comments:

Post a Comment