Last Updated:
Tuesday, October 25, 2005 06:08:11 AM
Note: This Saturday,
October 22, Greg Palast and his co-author, the Rev. Jesse
Jackson, received a Project Censored award, the "alternative
Pulitzer Prize," for their report,
JIM CROW RETURNS TO THE
VOTING BOOTH: DOES AMERICA HAVE AN APARTHEID VOTE-COUNTING
SYSTEM?
The
Palast investigative team received a second award for
uncovering the State Department's confidential pre-war plans
for the economic conquest of Iraq.
By special arrangement with Harper's magazine, we are
reproducing here for the first time the entire updated
article on the US government's secret schemes for seizing
control of the oil fields of Iraq....
TWO AND A HALF YEARS AND $202 BILLION into the war in Iraq,
the United States has at least one significant new asset to
show for it: effective membership, through our control of
Iraq's energy policy, in the Organization of the Petroleum
Exporting Countries (OPEC), the Arab-dominated oil cartel.
Just what to do with this proxy power has been, almost since
President Bush's first inaugural, the cause of a pitched
battle between neoconservatives at the Pentagon, on the one
hand, and the State Department and the oil industry, on the
other. At issue is whether Iraq will remain a member in good
standing of OPEC, upholding production limits and thereby
high prices, or a mutinous spoiler that could topple the
Arab oligopoly.
According to insiders and to documents obtained from the
State Department, the neocons, once in command, are now in
full retreat. Iraq's system of oil production, after a year
of failed free-market experimentation, is being re-created
almost entirely on the lines originally laid out by Saddam
Hussein.
Under the quiet direction of U.S. oil company executives
working with the State Department, the Iraqis have discarded
the neocon vision of a laissez faire, privatized oil
operation in favor of one shackled to quotas set by OPEC,
which have been key to the 148% rise in oil prices since the
beginning of 2002. This rise is estimated to have cost the
U.S. economy 1.5% of its GDP, or a third of its total growth
during the period.
Given this economic blow, and given that OPEC states account
for 46% of America's oil imports, it may seem odd that the
United States' "remaking" of Iraq would allow for a national
oil company that props up OPEC's price gouging. And in fact
the original scheme for reconstruction, at least the one
favored by neoconservatives, was to privatize Iraq's oil
entirely and thereby undermine the oil cartel. One
intellectual godfather of this strategy was Ariel Cohen of
the Heritage Foundation, who in September 2002 published
(with Gerald P. O'Driscoll, Jr.) a post-invasion plan, "The
Road to Economic Prosperity for a Post-Saddam Iraq," that
put forward the idea of using Iraq to smash OPEC. Cohen
explained to me how such an extraordinary geopolitical feat
might be accomplished. OPEC maintains high oil prices by
suppressing production through a quota system effectively
imposed on each member by Saudi Arabia, which reigns by dint
of its overwhelming reserves. The Saudis, to maintain their
control on pricing, must keep a lid on production from other
members-particularly Iraq, which has the second greatest
proven reserves.
Under Saddam Hussein, Iraq adhered to the OPEC quota limit
(historically set to equal Iran's, now 3.96 million barrels
a day) via state ownership of all fields. Cohen reasoned
that if Iraq's fields were broken up and sold off, a dozen
competing operators would quickly crank up production from
their individual patches to the maximum possible, swiftly
raising Iraq's total output to 6 million barrels a day. This
extra crude would flood world petroleum markets, OPEC would
devolve into mass cheating and overproduction, oil prices
would fall over a cliff, and Saudi Arabia-both economically
and politically - would fall to its knees.
By February 2003, Cohen's position had been enshrined as
official policy, in the form of a hundred-page blueprint for
the occupied nation titled, "Moving the Iraqi Economy from
Recovery to Sustainable Growth"-a plan that generally
embodied the principles for postwar Iraq favored by Defense
Secretary Donald Rumsfeld, Deputy Secretary Paul Wolfowitz,
and the Iran-Contra figure Elliott Abrams, now Deputy
National Security Adviser. Nominally written by a committee
of Defense, State, and Treasury officials, the blueprint was
in fact the brainchild of a platoon of corporate lobbyists,
chief among them the flattax fanatic Grover Norquist. From
overhauling tax rates to rewriting copyright law, the
document mapped out a radical makeover of Iraq as a
free-market Xanadu-a sort of Chile on the Tigris-including,
on page 73, the sell-off of the nation's crown jewels:
"privatization... [of] the oil and supporting industries."
Following the U.S. military's swift advance to Baghdad,
those skeptical of the neocon plan were summarily brushed
aside. Chief among the castoffs was General Jay Garner, the
shortlived occupation viceroy who on the very night he
arrived in Baghdad from Kuwait received a call from Rumsfeld
informing him of his dismissal. When I met with Garner last
March at the Washington offices of L3 Corporation's giant
security subsidiary he now heads, the general told me that
he had resisted imposing on Iraqis the plan's sell-off of
assets, especially the oil. "That's just one fight you don't
have to take on right now," he said. "You don't want to end
the day with more enemies than you started with."
In plotting the destruction of OPEC, the neocons failed to
predict the virulent resistance of insurgent forces: the
U.S. oil industry itself. From the outset of the planning
for war, U.S. oil executives had thrown in their lot with
the pragmatists at the State Department and the National
Security Council. Within weeks of the first inaugural,
prominent Iraqi expatriates-many with ties to U.S.
industry-were invited to secret discussions directed by
Pamela Quanrud, an NSC economics expert now employed at
State. "It quickly became an oil group," one participant,
Falah Aljibury, told me. Aljibury, an adviser to Amerada
Hess's oil trading arm and to investment banking giant
Goldman Sachs, who once served as a back channel between the
United States and Iraq during the Reagan and George H. W.
Bush administrations, cut ties to the Hussein regime
following the invasion of Kuwait.
The working group's ideas about the war had been far less
starry-eyed than those of the neocons. "The petroleum
industry, the chemical industry, the banking industry-they'd
hoped that Iraq would go for a revolution like in the past
and government was shut down for two or three days,"
Aljibury told me. "You have a martial law . . . and say Iraq
is being liberated and everybody stay where they are . . .
Everything as is." On this plan, Hussein would simply have
been replaced by some former Baathist general. One candidate
was General Nizar Khazraji, Saddam's former army chief of
staff, who at the time was under house arrest in Denmark
pending charges for war crimes. (Khazraji was seen in Iraq a
month after the U.S. invasion, but he soon disappeared and
has not been heard from since.)
Roughly six months before the invasion, the Bush
Administration designated Philip Carroll to advise the Iraqi
Oil Ministry once U.S. tanks entered Baghdad. Carroll had
been CEO of both Fluor Corporation, now a major contractor
in Iraq, and, earlier, of Royal Dutch/Shell's U.S. division.
In May 2003, a month after his arrival in Iraq, Carroll made
headlines when he told the Washington Post that Iraq might
break with OPEC: "[Iraqis] have from time to time, because
of compelling national interest, elected to opt out of the
quota system and pursue their own path. . . . They may elect
to do that same thing. To me, it's a very important national
question." Carroll later told me, though, that he personally
would not have been supportive of privatizing oil fields.
"Nobody in their right mind would have thought of doing
that," he said.
Soon after Carroll resigned his post in September 2003, the
new provisional government appointed an oil minister,
Ibrahim Bahr al-Uloum. Uloum (who had been maneuvered into
the job by then-neocon favorite Ahmad Chalabi) quickly fired
Muhammad al-Jiburi, chief of Iraq's State Oil Marketing
Organization, and Thamer Ghadhban, the expert in charge of
the southern oil fields, both of whom had been trusted by
the Western oil industry. Production faltered from a
combination of incompetence, wholesale theft (Iraq's oil was
unmetered), sabotage, and corruption that one oilman told me
was "rampant," with "direct payoffs to government officials
by commercial operators."
With pipelines exploding daily, the fantasy of remaking
Iraq's oil industry also went up in flames. Carroll was
replaced by another Houston oil chieftain, Rob McKee, a
former executive vice-president of ConocoPhillips and
currently the chairman-even during his tenure in Baghdad-of
Enventure, an oil-drilling supply subsidiary of the
Halliburton Corporation. McKee had little tolerance for the
neocons' threat to privatize the oil fields. A close
associate of McKee's and the executive adviser to Hess's
trading arm, Ed Morse, told me that "Rob was very promotive
of putting in place a really strong national oil company,"
even if he had to act over the objections of the Iraqi
Governing Council. Morse, who says he takes as many as six
calls a day from the Bush Administration regarding Iraq, is
one of the men to whom Washington turns to obtain the views
of Big Oil. Like Carroll and McKee, Morse sneers at what he
calls "the obsession of neo-conservative writers on ways to
undermine OPEC." Iraqis, says Morse, know that if they pump
6 million barrels a day, i.e., 2 million above their
expected OPEC quota, "they will crash the oil market" and
bring down their own economy.
In November 2003, McKee quietly ordered up a new plan for
Iraq's oil. The drafting would be overseen by a "senior
adviser," Amy Jaffe, who had worked for Morse when he held
the formidable title of Chairman of the Council on Foreign
Relations-James Baker III Institute Joint Committee on
Petroleum Security. Jaffe now works for Baker, the former
Secretary of State, whose law firm serves as counsel to both
ExxonMobil and the defense minister of Saudi Arabia. The
plan, nominally written by State Department contractor
BearingPoint, was guided, says Jaffe, by a handful of oil
industry consultants and executives.
For months, the State Department officially denied the
existence of this 323-page plan for Iraq's oil, but when I
identified the document's title from my sources and
threatened legal action, I was able to obtain the complete
report, dated December 2003 and entitled "Options for
Developing a Long Term Sustainable Iraqi Oil Industry." The
multi-volume document describes seven possible models of oil
production for Iraq, each one merely a different flavor of a
single option: the creation of a state-owned oil company.
The seven options ranged from the Saudi Aramco model, in
which the government owns the whole operation from reserves
to pipelines, to the Azerbaijan model, in which the
state-owned assets are operated almost entirely by "IOCs"
(International Oil Companies). The drafters had little
regard for the "self-financing" system, such as Saudi
Arabia's, which bars IOCs from the fields; they prefer the
production-sharing agreement (PSA) model, under which the
state maintains official title to the reserves but operation
and control are given to foreign oil companies. These
companies then manage, fund, and equip crude extraction in
exchange for a percentage of sales receipts.
While promoting IOC control of the fields, the authors take
care to warn the Iraqi government against attempting to
squeeze IOC profits: "Countries that do not offer
risk-adjusted rates of return equal to or above other
nations will be unlikely to achieve significant levels of
investment, regardless of the richness of their geology."
Indeed, to outbid other nations for Big Oil's favor will
require Iraq to turn over quite a large share of profits,
especially when competing against countries such as
Azerbaijan that have given away the store. The Azeri
government, notes the report, has "been able to partially
overcome their risk profile and attract billions of dollars
of investment by offering a contractual balance of
commercial interests within the risk contract." This refers
to the fact that Azerbaijan, despite its poor oil quality
and poor location, drew in the IOCs via scandalous splits of
revenue allowed by the nation's corrupt government.
Given how easily the interests of OPEC and those of the IOCs
can be aligned, it is certainly understandable why smashing
the oil cartel would not strike oilmen as a good idea. In
2004, with oil approaching the $50-a-barrel mark all year,
the major U.S. oil companies posted record or near record
profits. ConocoPhillips, Rob McKee's company, this February
reported a doubling of its quarterly profits from the
previous year, which itself had been a company record;
Carroll's former employer, Shell, posted a record-breaking
$4.48 billion in fourth-quarter earnings. ExxonMobil last
year reported the largest one-year operating profit of any
corporation in U.S. history.
When I talked to Ariel Cohen at Heritage, his dream of
smashing OPEC in shambles, he blamed the State Department
for acquiescing to the Saudis and to Russia, which also
benefit s from selling oil at high OPEC prices. The
poisonous policies were influenced, he said, by "Arab
economists hired by the State Department who are basically
supporting the witches' brew of the Saudi royal family and
the Soviet ostblock . . . because the Saudis are interested
in maximizing their market share and they're not interested
in fast growth of the Iraqi output."
According to Morse, the switch to an OPEC-friendly policy
for Iraq was driven by Dick Cheney himself. "The person who
is most influential in running American energy policy is the
Vice President," who, says Morse, "thinks that security
begins by . . . letting prices follow wherever they may."
Even, I asked, if those are artificially high prices, set by
OPEC? "The VP's office [has] not pursued a policy in Iraq
that would lead to a rapid opening of the Iraqi energy
sector . . . so they have not done anything, either with
producers or energy policy, that would put us on a track to
say, 'We're going to put a squeeze on OPEC.'"
Opposition to OPEC was handled in a style that would have
made Saddam proud. On May 20, 2004, Iraqi police raided
Ahmad Chalabi's home in Baghdad and carted away his
computers and files. Chalabi was hunted by his own
government: the charge was espionage, no less, for Iran.
Chalabi's Governing Council was soon shut down and,
crucially, Bahr al-Uloum was yanked from the Oil Ministry
and replaced by the very men he had removed: Thamer Ghadhban,
who took al-Uloum's job at the oil ministry and Chalabi
rival Muhammad al-Jiburi who was made minister of trade.
But just when you thought the fat lady sang for the
neo-cons, who should rise from his crypt eight months later
but Ahmad Chalabi. In January 2005, Chalabi cut a deal with
his former oil minister's father, a Shia power broker, and
rode that religious ethnic vote back into office. Chalabi
landed himself the post of Second Deputy Prime Minister and,
in addition, the tantalizing title of interim oil minister.
The espionage investigation was dropped; the King of Jordan
offered to pardon Chalabi for the $72 million missing from
Chalabi's former bank; and Chalabi once again turned over
his oil ministry to Sheik al-Uloum's son. The Texans' OPEC
man Ghadhban, was again kicked downstairs.
But Chalabi had learned his lesson: don't mess with Texas,
or the Texan's favorite cartel. A chastened Chalabi now
endorses Iraq's cooperation with OPEC's fleecing of the
planet's oil consumers.
And Dick Cheney, far from "putting the squeeze on OPEC," has
taken his de facto seat there, assenting by silence to the
oil monopoly's piratical price gouging. But hasn't OPEC's
stratospheric crude prices choked the life out of America's
auto industry and bankrupted half a dozen airlines? In the
Vice-President's bunker the elimination of jobs of
Democratic-leaning union members is likely seen as a bonus
for the good deed of boosting oil industry profits far above
the ozone layer.
**********
Greg Palast is the author of the New York Times bestseller,
The Best Democracy Money Can Buy. This is his fourth
investigative report for Harper's Magazine. Leni von Eckardt
was chief researcher with Palast on this project. This is
the Palast team's fifth Project Censored award from
California State University's school of journalism.
The BBC Television Newsnight broadcast of this story was
produced by Meirion Jones. View the BBC report and sign up
for Palast's investigation updates at
www.GregPalast.com
Disclaimer
Last Updated:
Tuesday, October 25, 2005 06:08:11 AM
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