Thread: Welcome to Pipelineistan

Liquid War
Postcard from Pipelineistan


By Pepe Escobar


Introduction by Tom Engelhardt
TomDispatch.com
March 24, 2009

Welcome to Pipelineistan

At one point last week, the price of a barrel of crude oil—which had risen as high as $147 last July and, with the global economic meltdown, hit a low of $32 in 2009—rebounded above $51. Prices at the local gas pump are expected to rise as well in the coming weeks. However, given a worldwide falloff in oil use, these price jumps may not hold for long. Still, cheap or not, oil and natural gas (as well as coal) are what drives global civilization, and that's clearly not going to change any time soon.

That, in turn, means the major powers are going to be no less eager to secure key energy reserves and control the flow of energy in bust times as they were in boom times, which is where Pepe Escobar comes in. In a long, typically vigorous essay just published in book form, "Obama Does Globalistan," he refers to his earlier book Globalistan as a "warped geopolitical travel book." That makes him a wonderfully "warped geopolitical traveler." In fact, he regularly circumnavigates the globe from Central Asia and the Middle East to Latin America, even sometimes landing in Washington, writing pyrotechnically for an online publication on which I have long been completely hooked, Asia Times.

Knowing his proclivity for following energy flows the way normal tourists might follow the sun, I asked him if he might offer TomDispatch readers periodic "postcards" from the energy heartlands of the planet and what he calls the Tower of Babel of "nations, mercenary peoples, terrorists, dictatorships, tribes, nomad mafias, and religious outfits" that are in conflict upon them. This is the first of his postcards. More will follow. Tom

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Liquid War
Postcard from Pipelineistan

By Pepe Escobar


What happens on the immense battlefield for the control of Eurasia will provide the ultimate plot line in the tumultuous rush towards a new, polycentric world order, also known as the New Great Game.

Our good ol' friend the nonsensical "Global War on Terror," which the Pentagon has slyly rebranded "the Long War," sports a far more important, if half-hidden, twin—a global energy war. I like to think of it as the Liquid War, because its bloodstream is the pipelines that crisscross the potential imperial battlefields of the planet. Put another way, if its crucial embattled frontier these days is the Caspian Basin, the whole of Eurasia is its chessboard. Think of it, geographically, as Pipelineistan.

All geopolitical junkies need a fix. Since the second half of the 1990s, I've been hooked on pipelines. I've crossed the Caspian in an Azeri cargo ship just to follow the $4 billion Baku-Tblisi-Ceyhan pipeline, better known in this chess game by its acronym, BTC, through the Caucasus. (Oh, by the way, the map of Pipelineistan is chicken-scratched with acronyms, so get used to them!)

I've also trekked various of the overlapping modern Silk Roads, or perhaps Silk Pipelines, of possible future energy flows from Shanghai to Istanbul, annotating my own DIY routes for LNG (liquefied natural gas). I used to avidly follow the adventures of that once-but-not-future Sun-King of Central Asia, the now deceased Turkmenbashi or "leader of the Turkmen," Saparmurat Niyazov, head of the immensely gas-rich Republic of Turkmenistan, as if he were a Conradian hero.

In Almaty, the former capital of Kazakhstan (before it was moved to Astana, in the middle of the middle of nowhere) the locals were puzzled when I expressed an overwhelming urge to drive to that country's oil boomtown Aktau. ("Why? There's nothing there.") Entering the Space Odyssey-style map room at the Russian energy giant Gazprom's headquarters in Moscow—which digitally details every single pipeline in Eurasia—or the National Iranian Oil Company (NIOC)'s corporate HQ in Tehran, with its neat rows of female experts in full chador, was my equivalent of entering Aladdin's cave. And never reading the words "Afghanistan" and "oil" in the same sentence is still a source of endless amusement for me.

Last year, oil cost a king's ransom. This year, it's relatively cheap. But don't be fooled. Price isn't the point here. Like it or not, energy is still what everyone who's anyone wants to get their hands on. So consider this dispatch just the first installment in a long, long tale of some of the moves that have been, or will be, made in the maddeningly complex New Great Game, which goes on unceasingly, no matter what else muscles into the headlines this week.

Forget the mainstream media's obsession with al-Qaeda, Osama "dead or alive" bin Laden, the Taliban—neo, light or classic—or that "war on terror," whatever name it goes by. These are diversions compared to the high-stakes, hardcore geopolitical game that follows what flows along the pipelines of the planet.

Who said Pipelineistan couldn't be fun?

Calling Dr. Zbig

In his 1997 magnum opus The Grand Chessboard, Zbigniew Brzezinski—realpolitik practitioner extraordinaire and former national security advisor to Jimmy Carter, the president who launched the U.S. on its modern energy wars—laid out in some detail just how to hang on to American "global primacy." Later, his master plan would be duly copied by that lethal bunch of Dr. No's congregated at Bill Kristol's Project for a New American Century (PNAC, in case you'd forgotten the acronym since its website and its followers went down).

For Dr. Zbig, who, like me, gets his fix from Eurasia—from, that is, thinking big—it all boils down to fostering the emergence of just the right set of "strategically compatible partners" for Washington in places where energy flows are strongest. This, as he so politely put it back then, should be done to shape "a more cooperative trans-Eurasian security system."

By now, Dr. Zbig—among whose fans is evidently President Barack Obama—must have noticed that the Eurasian train which was to deliver the energy goods has been slightly derailed. The Asian part of Eurasia, it seems, begs to differ.

Global financial crisis or not, oil and natural gas are the long-term keys to an inexorable transfer of economic power from the West to Asia. Those who control Pipelineistan—and despite all the dreaming and planning that's gone on there, it's unlikely to be Washington—will have the upper hand in whatever's to come, and there's not a terrorist in the world, or even a long war, that can change that.

Energy expert Michael Klare has been instrumental in identifying the key vectors in the wild, ongoing global scramble for power over Pipelineistan. These range from the increasing scarcity (and difficulty of reaching) primary energy supplies to "the painfully slow development of energy alternatives." Though you may not have noticed, the first skirmishes in Pipelineistan's Liquid War are already on, and even in the worst of economic times, the risk mounts constantly, given the relentless competition between the West and Asia, be it in the Middle East, in the Caspian theater, or in African oil-rich states like Angola, Nigeria and Sudan.

In these early skirmishes of the twenty-first century, China reacted swiftly indeed. Even before the attacks of 9/11, its leaders were formulating a response to what they saw as the reptilian encroachment of the West on the oil and gas lands of Central Asia, especially in the Caspian Sea region. To be specific, in June 2001, its leaders joined with Russia's to form the Shanghai Cooperation Organization. It's known as the SCO and that's an acronym you should memorize. It's going to be around for a while.

Back then, the SCO's junior members were, tellingly enough, the Stans, the energy-rich former SSRs of the Soviet Union—Kyrgyzstan, Uzbekistan, Kazakhstan, and Tajikistan—which the Clinton administration and then the new Bush administration, run by those former energy men, had been eyeing covetously. The organization was to be a multi-layered economic and military regional cooperation society that, as both the Chinese and the Russians saw it, would function as a kind of security blanket around the upper rim of Afghanistan.

Iran is, of course, a crucial energy node of West Asia and that country's leaders, too, would prove no slouches when it came to the New Great Game. It needs at least $200 billion in foreign investment to truly modernize its fabulous oil and gas reserves—and thus sell much more to the West than U.S.-imposed sanctions now allow. No wonder Iran soon became a target in Washington. No wonder an air assault on that country remains the ultimate wet dream of assorted Likudniks as well as Dick ("Angler") Cheney and his neocon chamberlains and comrades-in-arms. As seen by the elite from Tehran and Delhi to Beijing and Moscow, such a U.S. attack, now likely off the radar screen until at least 2012, would be a war not only against Russia and China, but against the whole project of Asian integration that the SCO is coming to represent.

Global BRIC-a-brac

Meanwhile, as the Obama administration tries to sort out its Iranian, Afghan, and Central Asian policies, Beijing continues to dream of a secure, fast-flowing, energy version of the old Silk Road, extending from the Caspian Basin (the energy-rich Stans plus Iran and Russia) to Xinjiang Province, its Far West.

The SCO has expanded its aims and scope since 2001. Today, Iran, India, and Pakistan enjoy "observer status" in an organization that increasingly aims to control and protect not just regional energy supplies, but Pipelineistan in every direction. This is, of course, the role the Washington ruling elite would like NATO to play across Eurasia. Given that Russia and China expect the SCO to play a similar role across Asia, clashes of various sorts are inevitable.

Ask any relevant expert at the Chinese Academy of Social Sciences in Beijing and he will tell you that the SCO should be understood as a historically unique alliance of five non-Western civilizations—Russian, Chinese, Muslim, Hindu, and Buddhist—and, because of that, capable of evolving into the basis for a collective security system in Eurasia. That's a thought sure to discomfort classic inside-the-Beltway global strategists like Dr. Zbig and President George H. W. Bush's national security advisor Brent Scowcroft.

According to the view from Beijing, the rising world order of the twenty-first century will be significantly determined by a quadrangle of BRIC countries—for those of you by now collecting Great Game acronyms, that stands for Brazil, Russia, India, and China—plus the future Islamic triangle of Iran, Saudi Arabia, and Turkey. Add in a unified South America, no longer in thrall to Washington, and you have a global SCO-plus. On the drawing boards, at least, it's a high octane dream.

The key to any of this is a continuing Sino-Russian entente cordiale.

Already in 1999, watching NATO and the United States aggressively expand into the distant Balkans, Beijing identified this new game for what it was: a developing energy war. And at stake were the oil and natural gas reserves of what Americans would soon be calling the "arc of instability," a vast span of lands extending from North Africa to the Chinese border. No less important would be the routes pipelines would take in bringing the energy buried in those lands to the West. Where they would be built, the countries they would cross, would determine much in the world to come. And this was where the empire of U.S. military bases (think, for instance, Camp Bondsteel in Kosovo) met Pipelineistan (represented, way back in 1999, by the AMBO pipeline).

AMBO, short for Albanian Macedonian Bulgarian Oil Corporation, an entity registered in the U.S., is building a $1.1 billion pipeline, aka "the Trans-Balkan," slated to be finished by 2011. It will bring Caspian oil to the West without taking it through either Russia or Iran. As a pipeline, AMBO fit well into a geopolitical strategy of creating a U.S.-controlled energy-security grid that was first developed by President Bill Clinton's Energy Secretary Bill Richardson and later by Vice President Dick Cheney.

Behind the idea of that "grid" lay a go-for-broke militarization of an energy corridor that would stretch from the Caspian Sea in Central Asia through a series of now independent former SSRs of the Soviet Union to Turkey, and from there into the Balkans (thence on to Europe). It was meant to sabotage the larger energy plans of both Russia and Iran. AMBO itself would bring oil from the Caspian basin to a terminal in the former SSR of Georgia in the Caucasus, and then transport it by tanker through the Black Sea to the Bulgarian port of Burgas, where another pipeline would connect to Macedonia and then to the Albanian port of Vlora.

As for Camp Bondsteel, it was the "enduring" military base that Washington gained from the wars for the remains of Yugoslavia. It would be the largest overseas base the U.S. had built since the Vietnam War. Halliburton's subsidiary Kellogg Brown & Root (KBR) would, with the Army Corps of Engineers, put it up on 400 hectares of farmland near the Macedonian border in southern Kosovo. Think of it as a user-friendly, five-star version of Guantanamo with perks for those stationed there that included Thai massage and loads of junk food. Bondsteel is the Balkan equivalent of a giant immobile aircraft carrier, capable of exercising surveillance not only over the Balkans but also over Turkey and the Black Sea region (considered in the neocon-speak of the Bush years "the new interface" between the "Euro-Atlantic community" and the "Greater Middle East").

How could Russia, China, and Iran not interpret the war in Kosovo, then the invasion of Afghanistan (where Washington had previously tried to pair with the Taliban and encourage the building of another of those avoid-Iran, avoid-Russia pipelines), followed by the invasion of Iraq (that country of vast oil reserves), and finally the recent clash in Georgia (that crucial energy transportation junction) as straightforward wars for Pipelineistan? Though seldom imagined this way in our mainstream media, the Russian and Chinese leaderships saw a stark "continuity" of policy stretching from Bill Clinton's humanitarian imperialism to Bush's Global War on Terror. Blowback, as then Russian President Vladimir Putin himself warned publicly, was inevitable—but that's another magic-carpet story, another cave to enter another time.

Rainy Night in Georgia

If you want to understand Washington's version of Pipelineistan, you have to start with Mafia-ridden Georgia. Though its army was crushed in its recent war with Russia, Georgia remains crucial to Washington's energy policy in what, by now, has become a genuine arc of instability—in part because of a continuing obsession with cutting Iran out of the energy flow.

It was around the Baku-Tblisi-Ceyhan (BTC) pipeline, as I pointed out in my book Globalistan in 2007, that American policy congealed. Zbig Brzezinski himself flew into Baku in 1995 as an "energy consultant," less than four years after Azerbaijan became independent, and sold the idea to the Azerbaijani elite. The BTC was to run from the Sangachal Terminal, half-an-hour south of Baku, across neighboring Georgia to the Marine Terminal in the Turkish port of Ceyhan on the Mediterranean. Now operational, that 1,767-kilometer-long, 44-meter-wide steel serpent straddles no less than six war zones, ongoing or potential: Nagorno-Karabakh (an Armenian enclave in Azerbaijan), Chechnya and Dagestan (both embattled regions of Russia), South Ossetia and Abkhazia (on which the 2008 Russia-Georgia war pivoted), and Turkish Kurdistan.

From a purely economic point of view, the BTC made no sense. A "BTK" pipeline, running from Baku through Tehran to Iran's Kharg Island, could have been built for, relatively speaking, next to nothing—and it would have had the added advantage of bypassing both mafia-corroded Georgia and wobbly Kurdish-populated Eastern Anatolia. That would have been the really cheap way to bring Caspian oil and gas to Europe.

The New Great Game ensured that that was not to be, and much followed from that decision. Even though Moscow never planned to occupy Georgia long-term in its 2008 war, or take over the BTC pipeline that now runs through its territory, Alfa Bank oil and gas analyst Konstantin Batunin pointed out the obvious: by briefly cutting off the BTC oil flow, Russian troops made it all too clear to global investors that Georgia wasn't a reliable energy transit country. In other words, the Russians made a mockery of Zbig's world.

For its part, Azerbaijan was, until recently, the real success story in the U.S. version of Pipelineistan. Advised by Zbig, Bill Clinton literally "stole" Baku from Russia's "near abroad" by promoting the BTC and the wealth that would flow from it. Now, however, with the message of the Russia-Georgia War sinking in, Baku is again allowing itself to be seduced by Russia. To top it off, Azerbaijan President Ilham Aliyev can't stand Georgia's brash President Mikhail Saakashvili. That's hardly surprising. After all, Saakashvili's rash military moves caused Azerbaijan to lose at least $500 million when the BTC was shut down during the war.

Russia's energy seduction blitzkrieg is focused like a laser on Central Asia as well. (We'll talk about it more in the next Pipelineistan installment.) It revolves around offering to buy Kazakh, Uzbek, and Turkmen gas at European prices instead of previous, much lower Russian prices. The Russians, in fact, have offered the same deal to the Azeris: so now, Baku is negotiating a deal involving more capacity for the Baku-Novorossiysk pipeline, which makes its way to the Russian borders of the Black Sea, while considering pumping less oil for the BTC.

President Obama needs to understand the dire implications of this. Less Azeri oil on the BTC—its full capacity is 1 million barrels a day, mostly shipped to Europe—means the pipeline may go broke, which is exactly what Russia wants.

In Central Asia, some of the biggest stakes revolve around the monster Kashagan oil field in "snow leopard" Kazakhstan, the absolute jewel in the Caspian crown with reserves of as many as 9 billion barrels. As usual in Pipelineistan, it all comes down to which routes will deliver Kashagan's oil to the world after production starts in 2013. This spells, of course, Liquid War. Wily Kazakh President Nursultan Nazarbayev would like to use the Russian-controlled Caspian Pipeline Consortium (CPC) to pump Kashagan crude to the Black Sea.

In this case, the Kazakhs hold all the cards. How oil will flow from Kashagan will decide whether the BTC—once hyped by Washington as the ultimate Western escape route from dependence on Persian Gulf oil—lives or dies.

Welcome, then, to Pipelineistan! Whether we like it or not, in good times and bad, it's a reasonable bet that we're all going to be Pipeline tourists. So, go with the flow. Learn the crucial acronyms, keep an eye out for what happens to all those U.S. bases across the oil heartlands of the planet, watch where the pipelines are being built, and do your best to keep tabs on the next set of monster Chinese energy deals and fabulous coups by Russia's Gazprom.

And, while you're at it, consider this just the first postcard sent off from our tour of Pipelineistan. We'll be back (to slightly adapt a quote from the Terminator). Think of this as a door opening onto a future in which what flows where and to whom may turn out to be the most important question on the planet.

Pepe Escobar is the roving correspondent for Asia Times and an analyst for the Real News. This article draws from his new book, Obama does Globalistan. He may be reached at pepeasia@yahoo.com.

http://www.tomdispatch.com/post/175050

Blue Gold, Turkmen Bashes, and Asian Grids
Pipelineistan in Conflict


By Pepe Escobar


Introduction by Tom Engelhardt
TomDispatch.com
May 12, 2009

Pipelineistan Goes Af-Pak

Back in March, Pepe Escobar, that itchy, edgy global reporter for one of my favorite on-line publications, Asia Times, began laying out the great, ongoing energy struggle across Eurasia, or what he likes to call Pipelinestan for its web of oil and natural gas pipelines. In his first report, he dealt with the embattled energy corridor (and a key pipeline) that runs from the Caspian Sea to Europe through Georgia and Turkey -- and the Great Game of business, diplomacy, and proxy war between Russia and the U.S. that has gone with it.

Now, in the second of what will be periodic "postcards" from the energy heartlands of the planet, he plunges eastward into tumultuous Central and South Asia and the great devolving battleground that, in Washington, now goes by the neologism of Af-Pak (for the Afghanistan-Pakistan theater of operations). There, the skies are filled with planes and unmanned aerial drones, and civilians as well as combatants die every day in increasing numbers as ever more frequent attacks and expanding conflicts make daily headlines, while, in Afghanistan, Washington continues to build new military bases and ready itself to send in reinforcements.

Those are, of course, the front-page stories. Energy, especially in the form of oil and natural gas, fuels everything from civilization to its various discontents and means of destruction, and yet it remains largely on the business pages of our papers. Even in a time of relatively depressed oil and gas prices, energy runs like an undercurrent just beneath global headlines. Under the carnage of war, that is, courses what Escobar likes to call the Liquid War, and just how the energy flows and through which territories controlled by whom does turn out to make -- quite literally -- a world of difference, even if that isn't what captures our attention most of the time.

Today, let Escobar, whose latest book is Obama Does Globalistan, take you deep into the "New Great Game" that will determine the shape of our future planet.

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Blue Gold, Turkmen Bashes, and Asian Grids
Pipelineistan in Conflict

By Pepe Escobar


As Barack Obama heads into his second hundred days in office, let's head for the big picture ourselves, the ultimate global plot line, the tumultuous rush towards a new, polycentric world order. In its first hundred days, the Obama presidency introduced us to a brand new acronym, OCO for Overseas Contingency Operations, formerly known as GWOT (as in Global War on Terror). Use either name, or anything else you want, and what you're really talking about is what's happening on the immense energy battlefield that extends from Iran to the Pacific Ocean. It's there that the Liquid War for the control of Eurasia takes place.

Yep, it all comes down to black gold and "blue gold" (natural gas), hydrocarbon wealth beyond compare, and so it's time to trek back to that ever-flowing wonderland -- Pipelineistan. It's time to dust off the acronyms, especially the SCO or Shanghai Cooperative Organization, the Asian response to NATO, and learn a few new ones like IPI and TAPI. Above all, it's time to check out the most recent moves on the giant chessboard of Eurasia, where Washington wants to be a crucial, if not dominant, player.

We've already seen Pipelineistan wars in Kosovo and Georgia, and we've followed Washington's favorite pipeline, the BTC, which was supposed to tilt the flow of energy westward, sending oil coursing past both Iran and Russia. Things didn't quite turn out that way, but we've got to move on, the New Great Game never stops. Now, it's time to grasp just what the Asian Energy Security Grid is all about, visit a surreal natural gas republic, and understand why that Grid is so deeply implicated in the Af-Pak war.

Every time I've visited Iran, energy analysts stress the total "interdependence of Asia and Persian Gulf geo-ecopolitics." What they mean is the ultimate importance to various great and regional powers of Asian integration via a sprawling mass of energy pipelines that will someday, somehow, link the Persian Gulf, Central Asia, South Asia, Russia, and China. The major Iranian card in the Asian integration game is the gigantic South Pars natural gas field (which Iran shares with Qatar). It is estimated to hold at least 9% of the world's proven natural gas reserves.

As much as Washington may live in perpetual denial, Russia and Iran together control roughly 20% of the world's oil reserves and nearly 50% of its gas reserves. Think about that for a moment. It's little wonder that, for the leadership of both countries as well as China's, the idea of Asian integration, of the Grid, is sacrosanct.

If it ever gets built, a major node on that Grid will surely be the prospective $7.6 billion Iran-Pakistan-India (IPI) pipeline, also known as the "peace pipeline." After years of wrangling, a nearly miraculous agreement for its construction was initialed in 2008. At least in this rare case, both Pakistan and India stood shoulder to shoulder in rejecting relentless pressure from the Bush administration to scotch the deal.

It couldn't be otherwise. Pakistan, after all, is an energy-poor, desperate customer of the Grid. One year ago, in a speech at Beijing's Tsinghua University, then-President Pervez Musharraf did everything but drop to his knees and beg China to dump money into pipelines linking the Persian Gulf and Pakistan with China's Far West. If this were to happen, it might help transform Pakistan from a near-failed state into a mighty "energy corridor" to the Middle East. If you think of a pipeline as an umbilical cord, it goes without saying that IPI, far more than any form of U.S. aid (or outright interference), would go the extra mile in stabilizing the Pak half of Obama's Af-Pak theater of operations, and even possibly relieve it of its India obsession.

If Pakistan's fate is in question, Iran's is another matter. Though currently only holding "observer" status in the Shanghai Cooperation Organization (SCO), sooner or later it will inevitably become a full member and so enjoy NATO-style, an-attack-on-one-of-us-is-an-attack-on-all-of-us protection. Imagine, then, the cataclysmic consequences of an Israeli preemptive strike (backed by Washington or not) on Iran's nuclear facilities. The SCO will tackle this knotty issue at its next summit in June, in Yekaterinburg, Russia.

Iran's relations with both Russia and China are swell -- and will remain so no matter who is elected the new Iranian president next month. China desperately needs Iranian oil and gas, has already clinched a $100 billion gas "deal of the century" with the Iranians, and has loads of weapons and cheap consumer goods to sell. No less close to Iran, Russia wants to sell them even more weapons, as well as nuclear energy technology.

And then, moving ever eastward on the great Grid, there's Turkmenistan, lodged deep in Central Asia, which, unlike Iran, you may never have heard a thing about. Let's correct that now.

Gurbanguly Is the Man

Alas, the sun-king of Turkmenistan, the wily, wacky Saparmurat "Turkmenbashi" Nyazov, "the father of all Turkmen" (descendants of a formidable race of nomadic horseback warriors who used to attack Silk Road caravans) is now dead. But far from forgotten.

The Chinese were huge fans of the Turkmenbashi. And the joy was mutual. One key reason the Central Asians love to do business with China is that the Middle Kingdom, unlike both Russia and the United States, carries little modern imperial baggage. And of course, China will never carp about human rights or foment a color-coded revolution of any sort.

The Chinese are already moving to successfully lobby the new Turkmen president, the spectacularly named Gurbanguly Berdymukhamedov, to speed up the construction of the Mother of All Pipelines. This Turkmen-Kazakh-China Pipelineistan corridor from eastern Turkmenistan to China's Guangdong province will be the longest and most expensive pipeline in the world, 7,000 kilometers of steel pipe at a staggering cost of $26 billion. When China signed the agreement to build it in 2007, they made sure to add a clever little geopolitical kicker. The agreement explicitly states that "Chinese interests" will not be "threatened from [Turkmenistan's] territory by third parties." In translation: no Pentagon bases allowed in that country.



China's deft energy diplomacy game plan in the former Soviet republics of Central Asia is a pure winner. In the case of Turkmenistan, lucrative deals are offered and partnerships with Russia are encouraged to boost Turkmen gas production. There are to be no Russian-Chinese antagonisms, as befits the main partners in the SCO, because the Asian Energy Security Grid story is really and truly about them.

By the way, elsewhere on the Grid, those two countries recently agreed to extend the East Siberian-Pacific Ocean oil pipeline to China by the end of 2010. After all, energy-ravenous China badly needs not just Turkmen gas, but Russia's liquefied natural gas (LNG).

With energy prices low and the global economy melting down, times are sure to be tough for the Kremlin through at least 2010, but this won't derail its push to forge a Central Asian energy club within the SCO. Think of all this as essentially an energy entente cordiale with China. Russian Deputy Industry and Energy Minister Ivan Materov has been among those insistently swearing that this will not someday lead to a "gas OPEC" within the SCO. It remains to be seen how the Obama national security team decides to counteract the successful Russian strategy of undermining by all possible means a U.S.-promoted East-West Caspian Sea energy corridor, while solidifying a Russian-controlled Pipelineistan stretching from Kazakhstan to Greece that will monopolize the flow of energy to Western Europe.

The Real Afghan War

In the ever-shifting New Great Game in Eurasia, a key question -- why Afghanistan matters -- is simply not part of the discussion in the United States. (Hint: It has nothing to do with the liberation of Afghan women.) In part, this is because the idea that energy and Afghanistan might have anything in common is verboten.

And yet, rest assured, nothing of significance takes place in Eurasia without an energy angle. In the case of Afghanistan, keep in mind that Central and South Asia have been considered by American strategists crucial places to plant the flag; and once the Soviet Union collapsed, control of the energy-rich former Soviet republics in the region was quickly seen as essential to future U.S. global power. It would be there, as they imagined it, that the U.S. Empire of Bases would intersect crucially with Pipelineistan in a way that would leave both Russia and China on the defensive.

Think of Afghanistan, then, as an overlooked subplot in the ongoing Liquid War. After all, an overarching goal of U.S. foreign policy since President Richard Nixon's era in the early 1970s has been to split Russia and China. The leadership of the SCO has been focused on this since the U.S. Congress passed the Silk Road Strategy Act five days before beginning the bombing of Serbia in March 1999. That act clearly identified American geo-strategic interests from the Black Sea to western China with building a mosaic of American protectorates in Central Asia and militarizing the Eurasian energy corridor.

Afghanistan, as it happens, sits conveniently at the crossroads of any new Silk Road linking the Caucasus to western China, and four nuclear powers (China, Russia, Pakistan, and India) lurk in the vicinity. "Losing" Afghanistan and its key network of U.S. military bases would, from the Pentagon's point of view, be a disaster, and though it may be a secondary matter in the New Great Game of the moment, it's worth remembering that the country itself is a lot more than the towering mountains of the Hindu Kush and immense deserts: it's believed to be rich in unexplored deposits of natural gas, petroleum, coal, copper, chrome, talc, barites, sulfur, lead, zinc, and iron ore, as well as precious and semiprecious stones.

And there's something highly toxic to be added to this already lethal mix: don't forget the narco-dollar angle -- the fact that the global heroin cartels that feast on Afghanistan only work with U.S. dollars, not euros. For the SCO, the top security threat in Afghanistan isn't the Taliban, but the drug business. Russia's anti-drug czar Viktor Ivanov routinely blasts the disaster that passes for a U.S./NATO anti-drug war there, stressing that Afghan heroin now kills 30,000 Russians annually, twice as many as were killed during the decade-long U.S.-supported anti-Soviet Afghan jihad of the 1980s.

And then, of course, there are those competing pipelines that, if ever built, either would or wouldn't exclude Iran and Russia from the action to their south. In April 2008, Turkmenistan, Afghanistan, Pakistan, and India actually signed an agreement to build a long-dreamt-about $7.6 billion (and counting) pipeline, whose acronym TAPI combines the first letters of their names and would also someday deliver natural gas from Turkmenistan to Pakistan and India without the involvement of either Iran or Russia. It would cut right through the heart of Western Afghanistan, in Herat, and head south across lightly populated Nimruz and Helmand provinces, where the Taliban, various Pashtun guerrillas and assorted highway robbers now merrily run rings around U.S. and NATO forces and where -- surprise! -- the U.S. is now building in Dasht-e-Margo ("the Desert of Death") a new mega-base to host President Obama's surge troops.

TAPI's rival is the already mentioned IPI, also theoretically underway and widely derided by Heritage Foundation types in the U.S., who regularly launch blasts of angry prose at the nefarious idea of India and Pakistan importing gas from "evil" Iran. Theoretically, TAPI's construction will start in 2010 and the gas would begin flowing by 2015. (Don't hold your breath.) Embattled Afghan President Hamid Karzai, who can hardly secure a few square blocks of central Kabul, even with the help of international forces, nonetheless offered assurances last year that he would not only rid his country of millions of land mines along TAPI's route, but somehow get rid of the Taliban in the bargain.

Should there be investors (nursed by Afghan opium dreams) delirious enough to sink their money into such a pipeline -- and that's a monumental if -- Afghanistan would collect only $160 million a year in transit fees, a mere bagatelle even if it does represent a big chunk of the embattled Karzai's current annual revenue. Count on one thing though, if it ever happened, the Taliban and assorted warlords/highway robbers would be sure to get a cut of the action.

A Clinton-Bush-Obama Great Game

TAPI's roller-coaster history actually begins in the mid-1990s, the Clinton era, when the Taliban were dined (but not wined) by the California-based energy company Unocal and the Clinton machine. In 1995, Unocal first came up with the pipeline idea, even then a product of Washington's fatal urge to bypass both Iran and Russia. Next, Unocal talked to the Turkmenbashi, then to the Taliban, and so launched a classic New Great Game gambit that has yet to end and without which you can't understand the Afghan war Obama has inherited.

A Taliban delegation, thanks to Unocal, enjoyed Houston's hospitality in early 1997 and then Washington's in December of that year. When it came to energy negotiations, the Taliban's leadership was anything but medieval. They were tough bargainers, also cannily courting the Argentinean private oil company Bridas, which had secured the right to explore and exploit oil reserves in eastern Turkmenistan.

In August 1997, financially unstable Bridas sold 60% of its stock to Amoco, which merged the next year with British Petroleum. A key Amoco consultant happened to be that ubiquitous Eurasian player, former national security advisor Zbig Brzezinski, while another such luminary, Henry Kissinger, just happened to be a consultant for Unocal. BP-Amoco, already developing the Baku-Tblisi-Ceyhan (BTC) pipeline, now became the major player in what had already been dubbed the Trans-Afghan Pipeline or TAP. Inevitably, Unocal and BP-Amoco went to war and let the lawyers settle things in a Texas court, where, in October 1998 as the Clinton years drew to an end, BP-Amoco seemed to emerge with the upper hand.

Under newly elected president George W. Bush, however, Unocal snuck back into the game and, as early as January 2001, was cozying up to the Taliban yet again, this time supported by a star-studded governmental cast of characters, including Undersecretary of State Richard Armitage, himself a former Unocal lobbyist. The Taliban were duly invited back to Washington in March 2001 via Rahmatullah Hashimi, a top aide to "The Shadow," the movement's leader Mullah Omar.

Negotiations eventually broke down because of those pesky transit fees the Taliban demanded. Beware the Empire's fury. At a Group of Eight summit meeting in Genoa in July 2001, Western diplomats indicated that the Bush administration had decided to take the Taliban down before year's end. (Pakistani diplomats in Islamabad would later confirm this to me.) The attacks of September 11, 2001 just slightly accelerated the schedule. Nicknamed "the kebab seller" in Kabul, Hamid Karzai, a former CIA asset and Unocal representative, who had entertained visiting Taliban members at barbecues in Houston, was soon forced down Afghan throats as the country's new leader.

Among the first fruits of Donald Rumsfeld's bombing and invasion of Afghanistan in the fall of 2001 was the signing by Karzai, Pakistani President Musharraf and Turkmenistan's Nyazov of an agreement committing themselves to build TAP, and so was formally launched a Pipelineistan extension from Central to South Asia with brand USA stamped all over it.

Russian President Vladimir Putin did nothing -- until September 2006, that is, when he delivered his counterpunch with panache. That's when Russian energy behemoth Gazprom agreed to buy Nyazov's natural gas at the 40% mark-up the dictator demanded. In return, the Russians received priceless gifts (and the Bush administration a pricey kick in the face). Nyazov turned over control of Turkmenistan's entire gas surplus to the Russian company through 2009, indicated a preference for letting Russia explore the country's new gas fields, and stated that Turkmenistan was bowing out of any U.S.-backed Trans-Caspian pipeline project. (And while he was at it, Putin also cornered much of the gas exports of Kazakhstan and Uzbekistan as well.)

Thus, almost five years later, with occupied Afghanistan in increasingly deadly chaos, TAP seemed dead-on-arrival. The (invisible) star of what would later turn into Obama's "good" war was already a corpse.

But here's the beauty of Pipelineistan: like zombies, dead deals always seem to return and so the game goes on forever.

Just when Russia thought it had Turkmenistan locked in…

A Turkmen Bash

They don't call Turkmenistan a "gas republic" for nothing. I've crossed it from the Uzbek border to a Caspian Sea port named -- what else -- Turkmenbashi where you can purchase one kilo of fresh Beluga for $100 and a camel for $200. That's where the gigantic gas fields are, and it's obvious that most have not been fully explored. When, in October 2008, the British consultancy firm GCA confirmed that the Yolotan-Osman gas fields in southwest Turkmenistan were among the world's four largest, holding up to a staggering 14 trillion cubic meters of natural gas, Turkmenistan promptly grabbed second place in the global gas reserves sweepstakes, way ahead of Iran and only 20% below Russia. With that news, the earth shook seismically across Pipelineistan.

Just before he died in December 2006, the flamboyant Turkmenbashi boasted that his country held enough reserves to export 150 billion cubic meters of gas annually for the next 250 years. Given his notorious megalomania, nobody took him seriously. So in March 2008, our man Gurbanguly ordered a GCA audit to dispel any doubts. After all, in pure Asian Energy Security Grid mode, Turkmenistan had already signed contracts to supply Russia with about 50 billion cubic meters annually, China with 40 billion cubic meters, and Iran with 8 billion cubic meters.

And yet, none of this turns out to be quite as monumental or settled as it may look. In fact, Turkmenistan and Russia may be playing the energy equivalent of Russian roulette. After all, virtually all of Turkmenistani gas exports flow north through an old, crumbling Soviet system of pipelines, largely built in the 1960s. Add to this a Turkmeni knack for raising the stakes non-stop at a time when Gazprom has little choice but to put up with it: without Turkmen gas, it simply can't export all it needs to Europe, the source of 70% of Gazprom's profits.

Worse yet, according to a Gazprom source quoted in the Russian business daily Kommersant, the stark fact is that the company only thought it controlled all of Turkmenistan's gas exports; the newly discovered gas mega-fields turn out not to be part of the deal. As my Asia Times colleague, former ambassador M.K. Bhadrakumar put the matter, Gazprom's mistake "is proving to be a misconception of Himalayan proportions."

In fact, it's as if the New Great Gamesters had just discovered another Everest. This year, Obama's national security strategists lost no time unleashing a no-holds-barred diplomatic campaign to court Turkmenistan. The goal? To accelerate possible ways for all that new Turkmeni gas to flow through the right pipes, and create quite a different energy map and future. Apart from TAPI, another key objective is to make the prospective $5.8 billion Turkey-to-Austria Nabucco pipeline become viable and thus, of course, trump the Russians. In that way, a key long-term U.S. strategic objective would be fulfilled: Austria, Italy, and Greece, as well as the Balkan and various Central European countries, would be at least partially pulled from Gazprom's orbit. (Await my next "postcard" from Pipelineistan for more on this.)

IPI or TAPI?

Gurbanguly is proving an even more riotous player than the Turkmenbashi. A year ago he said he was going to hedge his bets, that he was willing to export the bulk of the eight trillion cubic meters of gas reserves he now claims for his country to virtually anyone. Washington was -- and remains -- ecstatic. At an international conference last month in Ashgabat ("the city of love"), the Las Vegas of Central Asia, Gurbanguly told a hall packed with Americans, Europeans, and Russians that "diversification of energy flows and inclusion of new countries into the geography of export routes can help the global economy gain stability."

Inevitably, behind closed doors, the TAPI maze came up and TAPI executives once again began discussing pricing and transit fees. Of course, hard as that may be to settle, it's the easy part of the deal. After all, there's that Everest of Afghan security to climb, and someone still has to confirm that Turkmenistan's gas reserves are really as fabulous as claimed.

Imperceptible jiggles in Pipelineistan's tectonic plates can shake half the world. Take, for example, an obscure March report in the Balochistan Times: a little noticed pipeline supplying gas to parts of Sindh province in Pakistan, including Karachi, was blown up. It got next to no media attention, but all across Eurasia and in Washington, those analyzing the comparative advantages of TAPI vs. IPI had to wonder just how risky it might be for India to buy future Iranian gas via increasingly volatile Balochistan.

And then in early April came another mysterious pipeline explosion, this one in Turkmenistan, compromising exports to Russia. The Turkmenis promptly blamed the Russians (and TAPI advocates cheered), but nothing in Afghanistan itself could have left them cheering very loudly. Right now, Dick Cheney's master plan to get those blue rivers of Turkmeni gas flowing southwards via a future TAPI as part of a U.S. grand strategy for a "Greater Central Asia" lies in tatters.

Still, Zbig Brzezinski might disagree, and as he commands Obama's attention, he may try to convince the new president that the world needs a $7.6-plus billion, 1,600-km steel serpent winding through a horribly dangerous war zone. That's certainly the gist of what Brzezinski said immediately after the 2008 Russia-Georgia war, stressing once again that "the construction of a pipeline from Central Asia via Afghanistan to the south... will maximally expand world society's access to the Central Asian energy market."

Washington or Beijing?

Still, give credit where it's due. For the time being, our man Gurbanguly may have snatched the leading role in the New Great Game in this part of Eurasia. He's already signed a groundbreaking gas agreement with RWE from Germany and sent the Russians scrambling.

If, one of these days, the Turkmenistani leader opts for TAPI as well, it will open Washington to an ultimate historical irony. After so much death and destruction, Washington would undoubtedly have to sit down once again with -- yes -- the Taliban! And we'd be back to July 2001 and those pesky pipeline transit fees.

As it stands at the moment, however, Russia still dominates Pipelineistan, ensuring Central Asian gas flows across Russia's network and not through the Trans-Caspian networks privileged by the U.S. and the European Union. This virtually guarantees Russia's crucial geopolitical status as the top gas supplier to Europe and a crucial supplier to Asia as well.

Meanwhile, in "transit corridor" Pakistan, where Predator drones soaring over Pashtun tribal villages monopolize the headlines, the shady New Great Game slouches in under-the-radar mode toward the immense, under-populated southern Pakistani province of Balochistan. The future of the epic IPI vs. TAPI battle may hinge on a single, magic word: Gwadar.

Essentially a fishing village, Gwadar is an Arabian Sea port in that province. The port was built by China. In Washington's dream scenario, Gwadar becomes the new Dubai of South Asia. This implies the success of TAPI. For its part, China badly needs Gwadar as a node for yet another long pipeline to be built to western China. And where would the gas flowing in that line come from? Iran, of course.

Whoever "wins," if Gwadar really becomes part of the Liquid War, Pakistan will finally become a key transit corridor for either Iranian gas from the monster South Pars field heading for China, or a great deal of the Caspian gas from Turkmenistan heading Europe-wards. To make the scenario even more locally mouth-watering, Pakistan would then be a pivotal place for both NATO and the SCO (in which it is already an official "observer").

Now that's as classic as the New Great Game in Eurasia can get. There's NATO vs. the SCO. With either IPI or TAPI, Turkmenistan wins. With either IPI or TAPI, Russia loses. With either IPI or TAPI, Pakistan wins. With TAPI, Iran loses. With IPI, Afghanistan loses. In the end, however, as in any game of high stakes Pipelineistan poker, it all comes down to the top two global players. Ladies and gentlemen, place your bets: will the winner be Washington or Beijing?

http://www.tomdispatch.com/post/175071/ ... oes_af_pak

Jumpin' Jack Verdi, It's a Gas, Gas, Gas
Iran and the Pipelineistan Opera

By Pepe Escobar


Introduction by Tom Engelhardt
TomDispatch.com
October 01, 2009

Pipelineistan's Ultimate Opera

Back before email, a world traveler who wanted to keep in touch and couldn't just pop into the nearest Internet café, might drop you a series of postcards from one exotic locale after another. Pepe Escobar, that edgy, peripatetic globe-trotting reporter for one of my favorite on-line publications, Asia Times, has been doing just that for TomDispatch readers as he explores the geography that undergirds our civilization, the pipelines that crisscross Eurasia through which flow energy -- and trouble. This, then, is his third "postcard" from what he likes to call Pipelineistan. The first in March began laying out a great, ongoing energy struggle across Eurasia via an embattled energy corridor (and a key pipeline) that runs from the Caspian Sea to Europe through Georgia and Turkey -- and the Great Game of business, diplomacy, and proxy war between Russia and the U.S. that has gone with it.

In May, he plunged eastward into tumultuous Central and South Asia and the devolving battleground that, in Washington, goes by the neologism AfPak (for the Afghanistan-Pakistan theater of operations). Now, he heads west toward Europe and another developing struggle, this time over just how natural gas from the Caspian Sea will reach Europe. Think of this as a story that lurks under so many other stories. For instance, this very day, the representatives of Russia, Germany, China, France, Britain, and for the first time, the United States, will be sitting down with Iran's representative in Geneva for what's billed as an historic exchange. On the table -- and in global headlines -- will be the Iranian nuclear program, a previously secret Iranian nuclear site, Iranian medium-range missile tests, sanctions of various sorts, the possibility of future attacks on that country's nuclear establishment, and so on. What won't be in the headlines, or the accompanying reams of analysis, is the approximately 15% of the world's natural gas deposits Iran controls. As it happens, for the Europeans and the Russians (and so for Washington), that's the story hidden under the Iranian imbroglio, which is why we need Pepe Escobar.

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Jumpin' Jack Verdi, It's a Gas, Gas, Gas
Iran and the Pipelineistan Opera

By Pepe Escobar


Brussels -- Oil and natural gas prices may be relatively low right now, but don't be fooled. The New Great Game of the twenty-first century is always over energy and it's taking place on an immense chessboard called Eurasia. Its squares are defined by the networks of pipelines being laid across the oil heartlands of the planet. Call it Pipelineistan. If, in Asia, the stakes in this game are already impossibly high, the same applies to the "Euro" part of the great Eurasian landmass -- the richest industrial area on the planet. Think of this as the real political thriller of our time.

The movie of the week in Brussels is: When NATO Meets Pipelineistan. Though you won't find it in any headlines, at virtually every recent NATO summit Washington has been maneuvering to involve reluctant Europeans ever more deeply in the business of protecting Pipelineistan. This is already happening, of course, in Afghanistan, where a promised pipeline from Turkmenistan to Pakistan and India, the TAPI pipeline, has not even been built. And it's about to happen at the borders of Europe, again around pipelines that have not yet been built.

If you had to put that Euro part of Pipelineistan into a formula, you might do so this way: Nabucco (pushed by the U.S.) versus South Stream (pushed by Russia). Be patient. You'll understand in a moment.

At the most basic level, it's a matter of the West yet again trying, in the energy sphere, to bypass Russia. For this to happen, however -- and it wouldn't hurt if you opened the nearest atlas for a moment -- Europe desperately needs to get a handle on Central Asian energy resources, which is easy to say but has proven surprisingly hard to do. No wonder the NATO Secretary General's special representative, Robert Simmons, has been logging massive frequent-flyer miles to Central Asia over these last few years.

Just under the surface of an edgy entente cordiale between the European Union (EU) and Russia lurks the possibility of a no-holds-barred energy war -- Liquid War, as I call it. The EU and the U.S. are pinning their hopes on a prospective 3,300-kilometer-long, $10.7 billion pipeline dubbed Nabucco. Planning for it began way back in 2004 and construction is finally expected to start, if all goes well (and it may not), in 2010. So if you're a NATO optimist, you hope that natural gas from the Caspian Sea, maybe even from Iran (barring the usual American blockade), will begin flowing through it by 2015. The gas will be delivered to Erzurum in Turkey and then transported to Austria via Bulgaria, Romania, and Hungary.

Why, you might ask, is the pipeline meant to save Europe named for a Verdi opera? Well, Austrian and Turkish energy executives happened to see the opera together in Vienna in 2002 while discussing their energy dilemmas, and the biblical plight of the Jews exiled by King Nabucco (Nebuchadnezzar), a love story set amid a ferocious struggle for freedom and power, swept them away. Still, it's a stretch to turn steel tubes into dramatic characters.

Of course, the operatic theater here isn't really in the tubing, it's in the politics and strategic implications that surround the pipeline. In Eastern Europe, for instance, Nabucco is seen not as a European economic or energy project, but as a creature of Washington, just like the Baku-Tblisi-Ceyhan (BTC) pipeline from Azerbaijan to Turkey that President Bill Clinton and his crew backed so vigorously in the 1990s and which was finally finished in 2005. For those who have never believed the Cold War is over -- the Eastern Europeans among them -- once again it's the good guys (the West) against the commies... sorry, the Russians... at an energy-rich OK Corral.

The Great Borderless Gas Bazaar

Russia's answer to Nabucco is the 1,200-kilometer-long, $15 billion South Stream pipeline, also scheduled to be finished in 2015; it is slated to carry Siberian natural gas under the Black Sea from Russia to Bulgaria. From Bulgaria, one branch of the pipeline would then run south through Greece to southern Italy while the other would run north through Serbia and Hungary towards northern Italy.

Now, add another pipeline to the picture, the $9.1 billion Nord Stream that will soon enough snake from Western Russia under the Baltic Sea to Germany, which already imports 41.5% of its natural gas from Russia. The giant Russian energy firm Gazprom holds a controlling 51% of Nord Stream stock; the rest belongs to German and Dutch companies. The chairman of the board is none other than former German Chancellor Gerhard Schroeder.

Put this all together and Russia, with its pipelines running in all directions and firmly embedded in Europe, spells trouble for Nabucco's future and frustration for Washington's New Great Game plans to contain the Russian energy juggernaut. And that's without even mentioning Ukhta which, chances are, you've never heard of. If you aren't in the energy business, why should you have? After all, it's a backwater village in Russia's autonomous republic of Komi, 350 kilometers from the Arctic Circle. Built by forced labor, it was once part of Alexander Solzhenitsyn's Gulag archipelago. By 2030, however, you'll know its name. By then, a pipeline from remote Ukhta will be flooding Europe with natural gas and the village will be one of Nord Stream's key transit nodes.

While Nabucco as well as South Stream remain virtual, Nord Stream is a Terminator on the run. By 2010, it will be tunneling under the Baltic Sea heading for Germany. By 2011, it should be delivering the goods and a second pipe -- 12 meters long per joint, 100,000 tubes long -- will be under construction to double its capacity by 2014. Gazprom CEO Alexei Miller pulls no punches: this, he says, will be "the safest and most modern pipeline in the world."

How can Verdi lovers possibly compete? In the middle of a global recession, Gazprom is spending at least $20 billion to conquer Europe via Nord and South Stream. The strategy is a killer: pump gas under the sea directly to Europe, avoiding messy transit routes across troublesome countries like Ukraine. No wonder Gazprom, which today controls 26% of the European gas market, is expected to have a 33% share by 2020.

In other words, in many ways, the Nabucco versus South Stream energy war already looks settled. Nabucco is, at best, likely to be a secondary pipeline, incapable, as Washington once hoped, of breaking the EU away from energy dependence on Russia.

Brussels, predictably, is in its usual multilingual policy mess. Most bureaucrats at its monster, directive-churning body, the European Commission, publicly bemoan the "pipeline war." On the other hand, Ona Jukneviciene, chairwoman of the committees at the European Parliament dealing with Central Asia, admits that Nabucco cannot be the only option.

As for Reinhard Mitschek, managing director of the Nabucco consortium, he tries to put a brave face on things when he stresses, "we will transport Russian gas, Azeri gas, Iraqi gas." As for the top European official on energy matters, Andris Piebalgs, he can't help being a pragmatist: "We'll continue to work with Russia because Russia has energy resources."

From a business point of view, it's tough to argue with South Stream's selling points. Unlike Nabucco, it will offer cheaper, all-Russian natural gas that won't have to transit through potential war zones, and while Nabucco will always deliver limited amounts of Caspian natural gas to market, South Stream, given Russian resources, will have plenty of room to increase its output.

The fact is that, as of now, Nabucco still has no guaranteed sources of gas. In order for the gas to come from energy-rich Turkmenistan, to take but one example, the Turkmen leadership would have to break a deal they've already made with Russia, which now buys all of that country's export gas. There's no way that Moscow is likely to let one of the former Soviet Republics do that easily. In addition, both Russia and Iran could well be capable of blocking any pipeline straddling the floor of the Caspian Sea.

Gazprom will pay to build South Stream, and then distribute and sell gas it already controls to Europe; Nabucco, on the other hand, has to rely on a messy consortium of six countries (Austria, Hungary, Romania, Bulgaria, Turkey, and Germany) simply to finance one-third of its prospective costs, and then convince wary international bankers to shell out the rest.

The Pentagon does the Black Sea

So what does Washington want out of this mess? That's easy. Rewind to then-prospective Secretary of State Hillary Clinton in her Senate confirmation hearings on January 13, 2009. There, she decried Europe's dependence on Russian natural gas and issued an urgent call for "investments in the Trans-Caspian energy sector." Think of it as a signal: The new Obama administration would be as committed to Nabucco as the Bush administration had been.

What is never spelled out is why. Enter the Black Sea, that crucial geo-strategic stage where Europe meets the Middle East, the Caucasus, and Central Asia. Enter, thus, Bulgaria, home to a new Pentagon air base in Bezmer, one of six new strategic bases being built outside the U.S. and as potentially important to Washington's future games as the stalwart air bases in Incirlik, Turkey, and Aviano, Italy have been in the past. (Aviano was the key U.S./NATO base for the bombing of the Bosnian Serbs in 1995 and the 78-day bombing campaign against Serbia in 1999.)

With the Pentagon's bases already creeping within a stone's throw of Southwest and Central Asia, it doesn't take a genius to imagine the role Bezmer might play in any future attack on Iran (something the Russian defense establishment has already taken careful note of). With both Romania and Bulgaria now part of NATO, Article 5 of the alliance's charter now applies. NATO can take action "in the event of crises which jeopardize Euro-Atlantic stability and could affect the security of Alliance members."

In this way, Pipelineistan meets the American Empire of Bases.

Young Turks and Wily Russians

Why is everyone so damn hooked on Central Asian oil and gas? Elshad Nasirov, deputy chairman of the state-owned Azerbaijani oil company SOCAR, sums the addiction up succinctly enough: "This is the place where there is oil and gas in abundance. It is not Arab, not Persian, not Russian, and not OPEC."

It's the Caspian and, unfortunately for Europe, the region could, in energy terms, turn out to be not the caviar for which it's renowned but so many rotten fish eggs. No one knows, after all, whether the EU will ever be able to buy Iranian gas via Nabucco. No one knows whether the Central Asian "stans" have enough gas to supply Russia, China, and Turkey, not to mention India and Pakistan. No one knows whether any of their leaders will have the nerve to renege on their deals with Gazprom.

Ever since a 2008 British study determined that Turkmenistan may have natural gas reserves second only to Russia on the planet, the European Commission has been on a no-holds-barred tear to lure that country into delivering some of its future gas directly to Europe -- and not through the Russian pipeline system either. Turkmenistan's inscrutable leader, the spectacularly named Gurbanguly Berdymukhammedov, just has to say the word, but despite the claims of EU officials that he has agreed to send some gas Europe-wards, he's never offered a public word of confirmation. No wonder: with Nabucco unbuilt and a pipeline from his country to China still under construction, Turkmenistan can play Pipelineistan games only with Russia and Iran. In fact, Russia essentially controls the flow of Turkmen gas for the next 15 years.

Should Gurbanguly someday say the magic word -- and assuming the Russians don't throw a monkey wrench into the works -- he can marry Turkey, as the key transit country, with the EU and let them all sing Verdi till the sheep come home. In the meantime, angst is the name of the game in Europe (and so in Washington).

A declassified dossier from the FSB, the Russian heir to the KGB, is adamant: considering Nabucco's shortcomings, "Russia will remain the primary supplier of energy to Europe for the foreseeable future." Call it a matter of having your gas and processing it, too. Prime Minister Vladimir Putin has been making the point for years. If Europe tries to snub it, Russia will simply build its own liquefied natural gas (LNG) plants, to facilitate storage and transport, and sell its LNG all over the world.

Anyway it's worth paying attention to what the St. Petersburg State Mining Institute (where Putin earned his doctorate) has to say. According to the institute, Russia has only 20 years' worth of its own natural gas reserves left. Since Russia plans to sell up to 40% of its gas abroad, "Russian" gas may in the future actually mean Central Asian gas. All the more reason for the Russians to make sure that those massive Turkmen and other reserves flow north, not west.

Whatever Washington thinks, the Europeans know that energy independence from Russia is, in reality, inconceivable. Bottom line when it comes to natural gas: Europe needs everything -- Nord Stream, South Stream, and Nabucco. The bulk of the natural gas in this Pipelineistan maze may well turn out to be Central Asian anyway and a substantial part could be Iranian, if the Obama administration ever normalizes relations with Iran.

That, then, is the current state of play in the European wing of Pipelineistan. Russia seems to have virtually guaranteed its status as the top gas supplier to Europe for the foreseeable future. But that brings us to Turkey, a key regional power for both the U.S. and the EU. As President Obama has recognized, Turkey is both a real and a metaphorical bridge between the Christian and Muslim worlds. It is also an ideal transit country for carrying non-Russian gas to Europe and is now playing its own suitably complex Pipelineistan game.

Chances are that, like Ukhta in far off Siberia, you've never heard of Yumurtalik either. It's a fishing port squeezed between the Mediterranean Sea and the Taurus mountains, very close to Ceyhan, the terminal for two key nodes of Pipelineistan: the Kirkuk-Ceyhan pipeline from Iraq and the monster BTC pipeline. Turkey wants to turn Yumurtalik-Ceyhan into nothing less than the Rotterdam of the Mediterranean.

Even as it dreams of future EU membership, however, Turkey worries about antagonizing Moscow. And yet, being aboard the Nabucco Express and already fully committed to the functioning BTC pipeline puts the country on a potential collision course with Russia, its largest trading partner. Of course, this does not displease Washington.

On the other hand, the Turkish leadership draws ever closer to Iran, which provides 38% of Turkey's oil and 25% of its natural gas. Ankara and Tehran also have geopolitical affinities (especially in fighting Kurdish separatism). Together, they offer the best alternative to the Caucasus (Azerbaijan, Georgia) in terms of supplying Europe with Iranian natural gas. All this, of course, drives Washington nuts.

Needless to say, the Nabucco consortium itself would kill to have Iran as a gas supplier for the pipeline. They are also familiar with realpolitik: this could happen only with a Washington-blessed solution to the Iranian nuclear dossier. Iran, for its part, knows well how to seduce Europe. Mohammad-Reza Nematzadeh, managing director of the National Iranian Oil Company (NIOC), has insisted Iran is Europe's "sole option" for the success of Nabucco.

Is Russia just watching all this gas go by? Of course not. In October 2007, Putin signed a key agreement with Iranian President Mahmoud Ahmadinejad: If Iran cannot sell its gas to Nabucco -- a likelihood given the turbulence of American domestic politics and its foreign policy -- Russia will buy it. Translation: Iranian gas could end up, like Central Asian gas, heading for Europe as more "Russian" gas. With its European and Iranian policies at cross-purposes, Washington will not be amused.

When Turkish Prime Minister Recep Tayyip Erdogan threatened to "rethink Nabucco" if the tricky negotiations for Turkey to enter the EU drag on forever, EU leaders got the message (as much as France and Germany may be against a "Europe without borders"). Pragmatically, most EU leaders know very well that they need excellent relations with Turkey to one day have access to the Big Prize, Iranian gas; and that puts Europe's energy and EU membership inclinations at loggerheads.

Last July in Ankara, Nabucco was formally launched by an inter-governmental agreement. The representatives of Turkey, Austria, Bulgaria, Romania and Hungary were there. Obama's special Eurasian envoy, Richard Morningstar (a veteran of the BTC adventure), was there as well. The Central Asian stans were not there.

But crucially, Gurbanguly, ever the showman, finally made an entrance without ever leaving Turkmenistan, (almost) uttering the magic words in a meeting with his ministers in the capital, Ashgabat, on July 10th: "Turkmenistan, staying committed to the principles of diversification of supply of its energy resources to the world markets, is going to use all available opportunities to participate in major international projects -- such as, for example, [the] Nabucco project."

At the Vienna headquarters of Nabucco the mantra remains: this is "no anti-Russian project." Still, everyone knows that Russia's leaders are eager to kill it, and not a soul from Brussels to Vienna, Washington to Ashgabat, knows how to link Central Asia to Europe via a non-Russian pipeline, at the cost of more than $10 billion, without some assurance that Turkmeni, Kazakh, Azerbaijani, and/or Iranian natural gas will be fully (or even partially) on board. Who would be foolish enough to invest that kind of money without some guarantee that hundreds of miles of steel tubes won't remain empty? You don't need Verdi to tell you this is one hell of a quirky plot for a global opera.

Pepe Escobar is the roving correspondent for Asia Times and analyst for the Real News. His latest book is Obama Does Globalistan. He may be reached at pepeasia@yahoo.com.

http://www.tomdispatch.com/post/175121/ ... mate_opera

Big Oil's 'secret' out of Iraq's closet


By Pepe Escobar
Asia Times
Jul 4, 2008


NEW YORK - It is not about the "war on terror". It is not about weapons of mass destruction. It is not about "freedom and democracy to the Iraqi people", or to the "Afghan people". It is not about "Islamofascism". It is not about a Pentagon-coined "arc of instability" from the Middle East to Central Asia. New evidence shows once again both George W Bush administration wars - in Afghanistan and Iraq - above all are about oil and gas.

Those were the days - up to a few days ago, actually - when the fateful words "war" and "oil" would never have been aligned in the same sentence anywhere in US corporate media; the days when former defense secretary and Pentagon supremo Donald

Rumsfeld insisted Iraq had "literally nothing to do with oil".

But now the US and European Big Oil majors that controlled the Iraqi oil industry up to the 1972 nationalization - today represented by Exxon Mobil, Shell, BP, Total and Chevron - seem to be back with a vengeance. Thus the New York Times, for instance, can redeem itself from printing Ahmad Chalabi-fed weapons-of-mass-destruction nonsense on its front page for months and actually engage in news that's fit to print.

This past Monday, the paper reported that "a group of American advisers led by a small State Department team played an integral part in drawing up contracts between the Iraqi government and five major Western oil companies to develop some of the largest fields in Iraq".

The bland language may be misleading. This is no less than the first step in the de facto de-nationalization of the Iraqi oil industry - Vice President Dick Cheney's wet dream.

As James Paul, director of the Global Policy Forum, has summarized it, this is all about:
... a new round of immensely profitable oil deals ... announced by Iraqi Oil Minister Sharistani, in which giants like Exxon Mobil can nail down long-term contracts and take away a large share of the oil from several key operating fields, like the massive Rumaila and West Qurna, some of the world's largest.

Oil can be produced in these fields for about one dollar a barrel, while its value on world markets is now around US$140. With hundreds of millions of dollars of profits at stake - and while the US occupation remains in full force - the oil giants are making their move, seeking to bypass opposition in the Iraqi parliament and ignoring suspicion and anger among the Iraqi public. With world oil supplies visibly running short and oil prices skyrocketing, this is a desperate gamble to control some of the world's largest and most lucrative fields, at huge human and environmental cost.
Meanwhile in Washington, no collective breath is being held, as it's extremely unlikely the supine US Congress will be looking closer at whether the Bush administration is bypassing the Biden amendment, which prohibits the use of US funds to "exercise United States control over the oil infrastructure or oil resources of Iraq". There's too much money to be made.

Big Oil hardball
Hussein al-Shahristani, the Iraqi oil minister, has always been a huge cheerleader of Big Oil taking over the Iraq oil industry. He dreams of Iraq as the world's second - or at least third-biggest - oil producer, competing with Saudi Arabia and Russia. To get there he is frantically selling out, trying to get voracious, predatory production sharing agreements (PSAs) over the heads of the Iraqi parliament and even harassing Iraqi oil unions.

At this early stage it's still about TSAs (technical support agreements); these are simple consultancy contracts to help Iraq raise its oil production by 500,000 barrels a day, not long-term contracts to develop juicy oil and gas fields.

But oops! Iraqis have not been fooled by the smoke and mirrors - nor by Big Oil hardball. At a press conference in Baghdad on Monday, Shahristani had to admit, "We did not finalize any agreement ... because they refused to offer consultancy based on fees, as they wanted a share of the oil." Big Oil, of course, wants the "Big Prize" (copyright Cheney).

What Cheney and Big Oil really want is to wallow in the extra-profitable 30-year PSAs once the new, International Monetary Fund-redacted Iraqi oil law is forced through the gorges of the Iraqi parliament, sealing a major US-European takeover - the whole thing, of course, protected by a Status of Forces Agreement with its 58 US military bases, total control of Iraqi airspace, total legal immunity for US soldiers and the right for the Pentagon to turn Iraq upside down without even asking the hosts.

And make no mistake, that's what the US power elite always wanted.

Greg Muttit, co-director of the London-based oil industry research group Platform, explains that what's at stake at the current stage are "nine-year risk service contracts for six oilfields"; these are "halfway between TSAs and PSAs". Bids are due by March 2009, with signing in June 2009. As for the technical service contracts for five of the same oilfields, these are "no-bid contracts whose terms were dictated by the oil companies themselves". In other words: Big Oil is telling the Iraqi government what it wants.

And here's the catch. Muttit says, "The tendering of these fields is a big policy change, as producing fields were supposed to be developed by the Iraq National Oil Company [INOC], with only new fields allocated to foreign oil companies." Big Oil, though, wants the whole cake. INOC gets only a shabby 25% stake. Muttit makes an enlightening comparison with Libya, "where the national oil company gets around 80%, which is much more normal for fields of this size".

Meanwhile, in Central Asia ...
Bush/Cheney, unfazed by their own regime's death throes - and following what was already official policy under former present Bill Clinton - now are also poised to have one more crack at the New Great Game in Central Asia, trying to thwart regional energy supremacy by both Russia and Iran.

Last April, Afghanistan, Turkmenistan, Pakistan and India signed a Gas Pipeline Framework Agreement, deciding - not for the first time - to build the $7.6 billion TAP (now TAPI) pipeline that would deliver natural gas from Turkmenistan to Pakistan and probably India, cutting right through the heart of Afghanistan's Kandahar province, where the neo-Taliban are merrily running rings around the forces of the North Atlantic Treaty Organization.

Construction should start in 2010, with gas being supplied by 2015. The project is backed by the Manila-based Asian Development Bank. The government of Afghan President Hamid Karzai, which cannot even provide security for a few streets in central Kabul, has engaged in Hollywood-style suspension of disbelief by assuring unsuspecting customers it will not only get rid of millions of land mines blocking TAPI's route, it will get rid of the Taliban themselves.

Inevitably, US Assistant Secretary of State Richard Boucher weighed in, saying the US has a "fundamental strategic interest" in Afghanistan, without making a single reference to the words "oil" or "gas". In real life, with this move Bush/Cheney believe they can block the $7.5 billion Iran-Pakistan-India (IPI) pipeline, also known as the "peace" pipeline. Fat chance. The three countries are all on board and the pipeline, delivering Iranian gas to South Asia, is a go.

This new US adventure has also sent a frantic red alert right to the core of the Canadian government, which is now contemplating the geopolitical nightmare of having its troops, alongside NATO's, protecting a fragile pipeline in a war zone. The conservatives in power in Canada have committed to keep troops in Afghanistan at least until 2011.

The Canadian Center for Policy Alternatives released a report, A Pipeline Through a Troubled Land: Afghanistan, Canada and the New Great Energy Game, written by John Foster, energy economist and former lead economist of PetroCanada, depicting TAPI as turning Afghanistan into "an energy bridge" between Central and South Asia. But Foster is very worried "the quest for 'energy security' risks drawing Canada unwittingly into a new Great Energy Game".

Were investors, perhaps nursed by Afghan opium, to be delirious enough to build such a pipeline - and that's a monumental if - Afghanistan would collect a mere $160 million a year in transit fees. Well, that's maybe not so grim considering it's the equivalent of 50% of Karzai's current annual revenue. The Taliban would love to get a piece of the action.

Forget about all that old 2001 "bringing freedom to Afghan women" rhetoric. TAP's roller-coaster history goes back to the mid-1990s Clinton era, when the Taliban were wined and dined by California-based Unocal - and the Clinton machine. Unocal beat the competition, led by Argentina's Bridas. The negotiations broke down because of money - those pesky transit fees. At the Group of Eight summit in Naples in July 2001 it was decided the US would take out the Taliban by October; September 11, 2001, accelerated the schedule by a fraction.

One of the first actual fruits of the US bombing of Afghanistan in 2001 was that in December, Karzai, Pakistan's President Pervez Musharraf and Turkmenistan's wacky Nyazov (now dead) signed an agreement committing themselves to build TAP (by then known as the Trans-Afghan Pipeline). The Russians decided to wait for their counterpunch, and delivered it in style in September 2006.

Gazprom accepted a 40% price increase demanded by Nyazov for his gas. In return, the Russians got priceless gifts: control of all of Turkmenistan's gas surplus up to 2009; a preference for Russia to tap the new Yolotan gas fields; and Turkmenistan bowing out of any Trans-Caspian pipeline project. Nyazov pledged to supply all his country's gas to Russia.

Thus, dead on arrival, lay TAP, the (invisible) star of the "good" Afghan war, as Democratic senator and presidential hopeful Barack Obama now sees it. Washington's plan has always been to seduce Nyazov to provide Turkmenistan gas to the Baku-Tblisi-Ceyhan (BTC) pipeline, and then to TAP. This was part of a US grand strategy of a "Greater Central Asia" centered on Afghanistan and India.

Bush/Cheney will never give up. But India will go ahead with the Iranian pipeline. And Turkmenistan is selling all its surplus gas to Russia. Who needs a $7.6 billion, 1,600-kilometer steel serpent in a war zone?

It ain't over till the fat (oil) lady sings. But if the Bush administration "vision" of a perpetual Iraqi puppet regime, with its oil wealth confiscated and under the imperial boot, takes hold, alongside the Taliban having a long pipeline to play with in Afghanistan, the least one can expect is a lot more blood on the tracks.

Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007) and Red Zone Blues: a snapshot of Baghdad during the surge. He may be reached at pepeasia@yahoo.com.

http://www.atimes.com/atimes/Middle_East/JG04Ak03.html

Iraq: the Struggle for Oil


By James A. Paul
Executive Director, Global Policy Forum
August, 2002 (revised December, 2002)


Iraq possesses the world's second largest proven oil reserves, currently estimated at 112.5 billion barrels, about 11% of the world total and its gas fields are immense as well. Many experts believe that Iraq has additional undiscovered oil reserves, which might raise the total well beyond 250 billion barrels when serious prospecting resumes, putting Iraq closer to Saudi Arabia and far above all other oil producing countries. Iraq's oil is of high quality and it is very inexpensive to produce, making it one of the world's most profitable oil sources. Oil companies hope to gain production rights over these rich fields of Iraqi oil, worth hundreds of billions of dollars. In the view of an industry source it is "a boom waiting to happen."(1) As rising world demand depletes reserves in most world regions over the next 10-15 years, Iraq's oil will gain increasing importance in global energy supplies. According to the industry expert: "There is not an oil company in the world that doesn't have its eye on Iraq."(2) Geopolitical rivalry among major nations throughout the past century has often turned on control of such key oil resources.(3)

Five companies dominate the world oil industry, two US-based, two primarily UK-based, and one primarily based in France.(4) US-based Exxon Mobil looms largest among the world's oil companies and by some yardsticks measures as the world's biggest company.(5) The United States consequently ranks first in the corporate oil sector, with the UK second and France trailing as a distant third. Considering that the US and the UK act almost alone as sanctions enforcers (and as advocates of war against Iraq), and that they are the headquarters of the world's four largest oil companies, we cannot ignore the possible relationship of their policy with this powerful corporate interest.

US and UK companies long held a three-quarter share in Iraq's oil production, but they lost their position with the 1972 nationalization of the Iraq Petroleum Company.(6) The nationalization, following ten years of increasingly rancorous relations between the companies and the government, rocked the international oil industry, as Iraq sought to gain greater control of its oil resources. After the nationalization, Iraq turned to French companies and the Russian (Soviet) government for funds and partnerships.(7) Today, the US and UK companies are very keen to regain their former position, which they see as critical to their future leading role in the world oil industry. The US and the UK governments also see control over Iraqi and Gulf oil as essential to their broader military, geo-strategic and economic interests. At the same time, though, other states and oil companies hope to gain a large or even dominant position in Iraq. As de-nationalization sweeps through the oil sector, international companies see Iraq as an extremely attractive potential field of expansion. France and Russia, the longstanding insiders, pose the biggest challenge to future Anglo-American domination, but serious competitors from China, Germany and Japan also play in the Iraq sweepstakes.(

During the 1990s, Russia's Lukoil, China National Petroleum Corporation and France's TotalFinaElf held contract talks with the government of Iraq over plans to develop Iraqi fields as soon as sanctions are lifted. Lukoil reached an agreement in 1997 to develop Iraq's West Qurna field, while China National signed an agreement for the North Rumailah field in the same year (China's oil import needs from the Persian Gulf will grow from 0.5 million barrels per day in 1997 to 5.5 million barrels per day in 2020, making China one of the region's most important customers).(9) France's Total at the same time held talks for future development of the fabulous Majnun field.

US and UK companies have been very concerned that their rivals might gain a major long-term advantage in the global oil business. "Iraq possesses huge reserves of oil and gas – reserves I'd love Chevron to have access to," enthused Chevron CEO Kenneth T. Derr in a 1998 speech at the Commonwealth Club of San Francisco, in which he pronounced his strong support for sanctions.(10) Sanctions have kept the rivals at bay, a clear advantage. US-UK companies hope that the regime will eventually collapse, giving them a strong edge over their competitors with a post-Saddam government. As the embargo weakened and Saddam held onto power, however, stakes in the rivalry rose, for US-UK companies worried that they might eventually be shouldered aside. Direct military intervention by the US-UK, then, offers a tempting but dangerous gamble that might put Exxon, Shell, BP and Chevron in immediate control of the Iraqi oil boom, but at the risk of backlash from a regional political explosion.

In testimony to Congress in 1999, General Anthony C.Zinni, commander in chief of the US Central Command, testified that the Gulf Region, with its huge oil reserves, is a "vital interest" of "long standing" for the United States and that the US "must have free access to the region's resources."(11) "Free access," it seems, means both military and economic control of these resources. This has been a major goal of US strategic doctrine ever since the end of World War II. Prior to 1971, Britain (the former colonial power) policed the region and its oil riches. Since then, the United States has deployed ever-larger military forces to assure "free access" through overwhelming armed might.(12)

A looming US war against Iraq is only comprehensible in this light. For all the talk about terrorism, weapons of mass destruction and human rights violations by Saddam Hussein, these are not the core issues driving US policy. Rather, it is "free access" to Iraqi oil and the ultimate control over that oil by US and UK companies that raises the stakes high enough to set US forces on the move and risk the stakes of global empire.

Oil Companies in Iraq: A Century of Rivalry and War (November 2003)
Oil in Iraq: the Heart of the Crisis (December, 2002)
The Iraq Oil Bonanza: Estimating Future Profits (January 28, 2004)

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(1) Conversation with the author, June 5, 2002.
(2) Ibid.
(3) See, for example, Daniel Yergin, The Prize: the epic quest for oil, money and power (New York, 1991).
(4) In order of size these firms are: Exxon Mobil, Royal Dutch-Shell, British Petroleum-Amoco, Chevron-Texaco, and TotalFinaElf. Royal Dutch Shell is often described as a British-Dutch company, while TotalElfFina is sometimes described as a French-Italian company.
(5) ExxonMobil was ranked as the number one company worldwide in 2001 as measured by profits, which stood at over $15 billion. In that year, the company was ranked number two worldwide in terms of revenues, which totalled $192 billion, behind the far-less-profitable retail company Walmart, that had revenues of $220 billion.
(6) Major shareholders in IPC were: Shell, BP, Esso (later Exxon), Mobil, and CFP, the French national company.
(7) For an account of this period, see Joe Stork, Middle East Oil and the Energy Crisis (New York, 1975), 188-194. Since 1918, France had considered Iraq to be its main source of international oil reserves and its main means to gain parity with the Anglo-American companies (see Yergin, op. cit., 188-191).
( See Michael Tanzer, "Oil and Military Power in the Middle East and the Crimean Sea Region, The Black World Today (web site), two parts, February 28 and Mar 6, 2002.
(9)From US Department of Energy, International Energy Outlook, Table 13.
(10) Text as posted at www.chevrontexaco.com/news/archive/chev ... -11-05.asp At the time, Condoleeza Rice, currently US National Security Advisor, was a board member of Chevron and one of the company's supertankers was named after her. Though it is tempting to insist on the many oil and energy industry connections of the Bush administration, including the President and Vice President Cheney, oil issues have consistently had a heavy influence on US foreign policy, regardless of party or personalities.
(11) Testimony to the Senate Armed Services Committee, April 13, 1999.
(12) See Michael T. Klare, Resource Wars: the new landscape of global conflict (New York, 2001), esp. ch. 3, "Oil Conflict in the Persian Gulf."

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More Information on the Iraq Crisis
More Information on Sanctions Against Iraq
The Iraq Oil Bonanza: Estimating Future Profits (January 28, 2004)
Oil in Iraq: the Heart of the Crisis (December, 2002)

http://www.globalpolicy.org/component/c ... 71.html#10

Oil in Iraq: The Heart of the Crisis


James A. Paul
Global Policy Forum
December, 2002


Oil is at the heart of the crisis that leads towards a US war against Iraq. For more than a hundred years, major powers have battled to control this enormous source of wealth and strategic power. The major international oil companies, headquartered in the United States and the United Kingdom, are keen to regain control over Iraq's oil, lost with the nationalization in 1972. Few outside the industry understand just how high the stakes in Iraq really are and how much the history of the world oil industry is a history of power, national rivalry and military force.

Why Iraq's Oil is so coveted by the big companies

Oil in Iraq is especially attractive to the big international oil companies because of three factors:

(1)high quality/high value product
Iraq's oil is generally of high quality because it has attractive chemical properties, notably high carbon content, lightness and low sulfur content, that make it especially suitable for refining into the high-value products. For these reasons, Iraqi oil commands a premium on the world market.

(2)huge supplies
Iraq's oil is very plentiful. The country's proven reserves in 2002 were listed at 112.5 billion barrels, about 11% of the world total. With little exploration since the nationalization of the industry in 1972, many promising areas remain unexplored. Experts believe that Iraq has potential reserves substantially above 200 billion barrels. The Energy Information Administration of the US Department of Energy has estimated that Iraqi reserves could possibly total over 400 billion barrels. If new exploration fulfills such high-end predictions, Iraq's reserves could prove close to those of Saudi Arabia, now listed at 260 billion barrels but likely also to go considerably higher as well. The Department of Energy assessment says that:

"Iraq contains 112 billion barrels of proven oil reserves, the second largest in the world (behind Saudi Arabia) along with roughly 220 billion barrels of probable and possible resources. Iraq's true potential may be far greater than this, however, as the country is relatively unexplored due to years of war and sanctions. Deep oil-bearing formations located mainly in the vast Western Desert region, for instance, could yield large additional oil resources (possibly another 100 billion barrels), but have not been explored." (http://www.eia.doe.gov/emeu/cabs/iraq.html)

On May 22, 2002, Iraqi Senior Deputy Oil Minister gave an interview to Platts, a leading industry information source. Discussing Iraq's estimates of its potential reserves, he told Platts that "The figure we reached and which is widely known, is that we could discover 214 billion barrels of oil in addition to the present proven reserve [of 112 billion]. We are sure of this figure as all available indications and scientific standards say. This means that we will exceed the 300 billion barrels when all Iraq's regions are explored."

Hamud indicated that more reserves were probably to be found. "We have also said on many occasions that we have indications of oil structures--these are only primary indications--estimated to be more than 560 reservoirs that could be oil fields that need digging, appraisal and which we believe have a high potential oil presence. We believe that when we prove all this, Iraq will be the number one holder of oil reserves in the world. We are highly confident of this."

According to Iraq oil expert Mohammad Al-Gallani at British-based GeoDesign Ltd, Iraq has 526 prospective drilling sites, of which only 125 have been drilled. Of those, 90 have proven potential as oil fields, but only 30 have been partially developed and just 12 are on stream. "You can imagine the huge potential that lies there for the future," Al-Gallani told Canadian Press in a story datelined December 14, 2002.

As world demand for oil increases and as oil reserves in other areas decline at a fast rate, oil in Iraq will represent a steadily-larger proportion of the world's total. If Iraq's fields meet high-end estimates in the 3-400 billon barrel range, Iraq's reserves could reach over 30% of total global reserves by mid-century or even before.

(3)exceptionally low production costs, yielding a high per barrel profit
The US Department of Energy states that "Iraq's oil production costs are amongst the lowest in the world, making it a highly attractive oil prospect." This is because Iraq's oil comes in enormous fields that can be tapped by relatively shallow wells, producing a high "flow rate." Iraq's oil rises rapidly to the surface, because of high pressure on the oil reservoir from water and from associated natural gas deposits.

More than a third of Iraq's current reserves lie just 600 meters (1800 feet) below the earth's surface and some of Iraq's fields are among the world's largest. The fabulous Majnoun Field, not yet in production, is said to hold at least 25 billion barrels. According to Oil and Gas Journal, Western oil companies estimate that they can produce a barrel of Iraqi oil for less than $1.50 and possibly as little as $1, including all exploration, oilfield development and production costs and including a 15% return. This is similar to production costs in Saudi Arabia and lower than virtually any other country.

By way of comparison, a barrel of oil costs $5 to produce in other relatively low-cost areas like Malaysia and Oman. Production costs in Mexico and Russia might potentially be as low as $6-8 per barrel (higher under current production arrangements by local companies).

Offshore production areas like the North Sea, with expensive platforms, can run to $12-16 a barrel. In Texas and other US and Canadian fields, where deep wells and small reservoirs make production especially expensive, costs can run above $20 a barrel. When world market prices dip below $20 a barrel, the North American fields yield no profit at all, and many are capped, while production in an area like Iraq proves extremely profitable in all market conditions.

Oil companies' future profits (and share prices) depend on their control of reserves. In recent years, as older fields have begun to run out, the companies have faced rising "replacement" costs. According to a 2002 report by energy consultants John S. Herold, finding costs for new reserves rose 60% in 2001, pushing replacement costs to $5.31 a barrel. ExxonMobil, BP and Shell are facing this difficulty. Imagine the lure of the vast Iraqi fields, with little prospecting required, offering nearly free acquisition. As Fadel Gheit of Fahnstock & Co. in New York commented in an article in Dawn, Iraq "would be a logical place in the future for oil companies to replace their reserves." http://www.dawn.com/2002/12/15/ebr12.htm Another expert called Iraq an "El Dorado" for the oil industry.

Estimating Profits in Iraq

Oil prices fluctuate widely, so any discussion of financial yield must be based on a long term average price estimate. For this discussion, we will use an average prices of $25 a barrel in real (inflation-adjusted) terms. This average is higher than the average price in recent years, but as oil becomes scarcer, the price should rise steadily and might well reach a far high level than $25. (During 2002, by way of reference, the price of oil has fluctuated between $20 and $30).

We will assume the level of Iraqi reserves at 250 billion barrels (a very conservative estimate) and recovery rates at 50% (also a very conservative estimate). Under those conditions, recoverable Iraqi oil would be worth altogether about $3.125 trillion. Assuming production costs of $1.50 a barrel (a high-end figure), total costs would be $188 billion, leaving a balance of $2.937 trillion as the difference between costs and sales revenues. Assuming a 50/50 split with the government and further assuming a production period of 50 years, the company profits per year would run to $29 billion. That huge sum is two-thirds of the $44 billion total profits earned by the world's five major oil companies combined in 2001. If higher assumptions are used, annual profits might soar to as much as $50 billion per year.

Though such numbers are highly speculative, the oil companies themselves engage in similar exercises, as they develop their global strategies and plan for a flow of profits many years into the future. For instance, two Russian companies, Zarubeshneft and Rosneft, told journalists in 2002 that that they were preparing to develop Iraq's Nahr Umr field that they estimated was worth about $570 billion. This estimate appears too high, based on our assumptions, but they suggest the order of magnitude. Reliable estimates for the value of the fabulous Majnoun field go up to $400 billion and beyond.

If diminishing supplies drive future prices steadily higher or if Iraq's oil reserves prove to be much larger than 250 billion barrels, the profit yield might be considerably greater. On the other hand, a nationalist government in Baghdad that would demand a higher percentage split would reduce the profit potential, as would the development of major alternative energy sources and taxes on carbon-based fuels in response to global warming. Whatever the exact results, and assuming a U.S.-friendly government, it is clear that Iraq is a goldmine that is literally "worth fighting for" in the view of the big companies.

Iraqi Gas Reserves and Pipeline Routes

The same multinational companies that rule the oil industry are also in the natural gas business. Gas is increasingly popular because it burns with less particulate and has a lower carbon content per unit of energy output. Large gas reserves have been discovered in fields in northern Iraq and other gas fields may be found elsewhere in the country. Though Iraq's gas may not prove to be as lucrative as its oil, this resource is also coveted by the companies and could be a source of additional multi-billion dollar profits. In December, 1996, Gaz de France and ENI of Italy formed a consortium to build a pipeline from the Iraqi fields to Turkey, a project that could eventually link up with the European gas grid. But because of the UN sanctions against Iraq, this project could not proceed. In post-war Iraq, the big US-UK companies will seek gas production and transport deals along with oil deals, in hopes of snatching these lucrative prospects away from continental European competitors. Other pipeline projects, to bring gas from Qatar and other Gulf states through Iraq to the European market, are also under study and offer huge profits to whichever companies get permission to build them.

New Oil Company Strategy Aims to Regain Dominance in Production

After the nationalizations that swept the oil producing countries, beginning with Iraq's nationalization in 1972, the oil multinationals lost much of their role in production, known in the oil business as "upstream." Forced to abandon the cornucopia of profits in the Middle East (and to buy Middle East oil on the world market), they developed alternative production in such areas as the North Sea and the West Coast of Africa where production costs were higher and profits lower. They had to shift much of their profit-making to "downstream" activities such as transportation (tankers and pipelines), refining, petrochemicals and retailing. Major national oil companies (such as Kuwait and Venezuela) pursued downstream strategies as well, however, leading to overcapacity and falling rates of return.

By the mid-1990s, the companies began to revise their strategy towards a return to upstream, crude-oil production, pressing oil producing governments to offer production-related arrangements that could give the multinationals a direct share in crude reserves. Such ideas proved controversial and contrary to nationalist public sentiment in the producing countries.

By the end of the 1990s, however, oil-producing governments were mired in political crises, due to corruption, wars, and civil unrest. In Venezuela, Iraq, Algeria, Iran, and other producer countries, the US government appeared to be involved in destabilization measures, deepening existing social instability and what some scholars call "the crisis of the rentier state." Facing domestic unrest and oil production problems, the nationalized companies confront the need for large new investments to preserve production in older fields and to prospect for new reserves. But corrupt and instable governments want to take all the oil revenue stream, leaving little left over for investments. The multinationals argue that their enormous finances, greater technical competence and lower production costs could benefit producer governments, but behind these technocratic arguments lies the threat of further foreign destabilization and even direct military intervention. Clearly, the companies hope to roll the clock back to the "good old days" when they ruled the oil business and gave producer governments only a very small share.

Effects of US-Dominated Iraq on Other Oil Producer Governments

A U.S. client government in Baghdad – or a U.S. military occupation government – would doubtless hand out upstream production concessions to US-UK companies that would set an important precedent in the world oil industry, tipping the balance of power in favor of the companies and away from the producer states. In this way, the war against Iraq would have an effect on the oil industry that would go far beyond the borders of Iraq.

Oil analysts believe that a US-controlled Iraqi government would quickly make deals with the companies for privatized production. Such deals, though possibly agreed-to in advance of the war, would be justified by the new government on the basis that only the companies would be able to quickly resume post-war production, in order to resume exports and buy critical food, medicines, and other humanitarian goods. Further, Iraq's huge needs to rebuild its post-war infrastructure would lead towards high production.

Even before Iraq had reached its full production potential of 8 million barrels or more per day, the companies would gain huge leverage over the international oil system. OPEC would be weakened by the withdrawal of one of its key producers from the OPEC quota system. Indeed, OPEC might face the paradox that a US military government of occupation in Iraq would be an OPEC member! Alternatively, such a government might pull out of the producers' cartel.

This would put pressure on all major oil producers like Kuwait, Iran, Saudi Arabia and Venezuela to de-nationalize their oil companies and offer US-UK companies new concessions or production-sharing agreements that could lead to far higher company profits in these areas. Iran has already made some deals based on a 50/50 split and Saudi Arabia has returned to production sharing in its emerging gas business. US military presence in the Gulf and US clandestine operations to overthrow nationalist governments such as Chavez in Venzuela would increase the pressure. Privatization, even if incomplete, could yield additional tens of billions of profits to the oil companies and would weaken and even destabilize the major oil-producing states. Oil prices might be lowered temporarily to achieve this purpose, then raised later on when a new company-friendly order had been established.

Competition among the Multinational Oil Companies

Five companies dominate the international oil industry, four of them based in the US and the UK. The largest, US-based Exxon Mobil, was the world's most profitable company in 2001 ($15 billion in profits) and the largest industrial company in terms of revenue. The three other companies in order of size are: BP Amoco (UK), Royal Dutch Shell (UK), and Chevron Texaco (US). France's TotalElfFina ranks in fifth place. Predecessors of these firms controlled nearly all of the Iraq Petroleum Company from the discovery of oil in the late 1920s until nationalization in 1972. The British firms held half of the company, reflecting the dominant colonial position of the UK at that time in the region.

After nationalization, the Iraqis sought to gain greater control of their oil resources. They shunned the UK and US companies, while developing working relationships with French companies and the (Soviet) Russian government.. Just before the Gulf War (1990-91), Japanese companies negotiated for production-sharing contracts in Iraq and were said to have concluded a deal for the Majnoun field, but that deal collapsed due to the US-led war and the subsequent sanctions. During the 1990s, various firms negotiated with the Iraqis in hopes of gaining access to Iraqi oil once the sanctions were lifted. Shell, and possibly other US-UK companies held secret talks that did not succeed. In 1997 TotalFinaElf, China National Oil Company, and Lukoil of Russia signed agreements with the Iraqis for deals worth hundreds of billions of dollars. Lukoil's deal concerned development of the West Qurna field, while TotalFinaElf obtained rights to Majnoun and China Nations to North Rumailah (the latter is the huge field that lies astride the border with Kuwait). A number of smaller companies, mostly Russian but also from Malaysia and other countries, got contracts at about this time.

The US-UK companies, keen to regain their former dominance in Iraq, fear that they would lose their leading role in the world oil industry if these contracts with their competitors come to fruition. France and Russia pose the biggest threat, but serious competitors from China, Germany, Italy and Japan also are players in this sweepstakes. China is especially keen to gain a stake in the region's oil reserves because its rapid economic growth is pushing up its oil consumption. Chinese economists estimate that China may have to import as much as 5.5 million barrels a day from the Gulf by 2020.

The US-UK companies strongly favored the sanctions, as a means to hold their competitors at bay (and hold down excess production on the world market), but weakening sanctions in the late 1990s threatened their future prosperity. The companies are nervous but enthusiastic about Washington's war option, for it seems to be the only means left to oust their rivals and establish a dominant presence in the fabulously profitable future of Iraq oil production.

It appears that the Washington has used its post-war control over Iraqi oil to win over opposition in the UN Security Council. Discussions over access to future oil production in Iraq have apparently been going on between Washington, London, Moscow, Paris and Beijing and also between the companies directly. Many news stories have suggested that these parleys have taken place and statements by government leaders have underscored the importance of the oil issue.

"We will review all these agreements, definitely," said Faisal Qaragholi to a Washington Post reporter in September. Quaragholi is a petroleum engineer who directs the London office of the Iraqi National Congress (INC), an umbrella organization of opposition groups that is backed by the United States. "Our oil policies should be decided by a government in Iraq elected by the people."

Ahmed Chalabi, the INC leader, went even further, saying he favored the creation of a U.S.-led consortium to develop Iraq's oil fields, which have deteriorated under more than a decade of sanctions. "American companies will have a big shot at Iraqi oil," Chalabi said. Such statements have deepened the fears of the non-US-UK companies and pressured them to go along with the US war plans in order to get a share of the post-war concessions.

Business news agency Reuters, in a story datelined December 15, 2002, put the matter bluntly when it wrote "Iraq's crude reserves, the world's second largest after Saudi Arabia, are at the center of a tug-of-war between countries hoping to grab a share of Baghdad's oil wealth once United Nations sanctions are lifted."

Free Market Forces vs. Government Intervention and Military Might

The specially high rate of profit (or "rent" as it is sometimes called by economists who study the oil sector) results from the unusual monopolistic structure of the oil industry and its unusual pricing system. From the earliest days in the 1870s, when John D. Rockeller built the Standard Oil Trust, a relatively small number of major companies have controlled world production and prices. These companies have tried to keep prices and production at a controlled level – to maximize their profits. The industry has always relied on close ties to governments. Governments have helped to maintain favorable market conditions, to promote managed pricing and to help the companies gain new sources of supply in foreign lands.

In the early decades, the Standard Oil Trust completely dominated the international oil markets, and US production represented a very large share of the world's total. During World War I, US oil supplied an estimated 80% of the Allies' needs. But by the end of the war, the British had built alternative companies – the Anglo-Persian Oil Company (later BP) and Royal Dutch Shell, which together controlled more than half of the world's oil reserves. US companies feared that the British, through exclusionary policies in their empire, were going to dominate the world's oil industry. British government purchase of the Anglo-Persian Oil Company (now BP) in 1914 confirmed these fears. And British firms' leading role in Venezuela brought the competition right into the backyard of the American companies.

Throughout the inter-war period and up to the present the US and the UK have dominated the international oil industry, always in rivalry but also in collusion. The companies in these two countries have towered above those of all other nations. Bids by Japan, Germany, Italy, Russia and France to gain a major stake in the industry have largely failed, though a single large French company remains the sole challenger today to Anglo-American domination.

The Anglo-American companies have always sought to manage global oil output, though collusive agreements. In 1928, they reached the famous "Red Line Agreement" on joint action in the Middle East and the "Achanarry Agreement" to divide up (and avoid competition in) international markets. These agreements have maintained the extraordinary "rent" of Middle East producers, while supporting continued high-cost production in the United States and Canada. If oil markets functioned "normally," production would increase in the low-cost areas like Saudi Arabia, Kuwait, Iran and Iraq, driving out of business the low-cost producers in North America, but this has not been the case.

Because of the enormous value of oil concessions and the high "rent" that results from low-cost fields, oil concessions are rarely allocated on a purely "market" basis. The companies typically win the most lucrative concessions through their host governments' political and military power.

Imperial Control and Local Opposition: Will the US Iraq Plan Succeed?

The long, bitter experience of oil producing countries with the US-UK companies has left behind an anger and militancy in local politics that hinders the companies' efforts to re-organize the "upstream" system. Such feelings run deep in Iraqi politics, going back to British seizure of Iraq after World War I and the bloody repression (including the use of poison gas) that crushed the nationalist revolt of 1920. British leaders fulminated against "Turkish misrule" in Iraq, but their own rule proved equally odious to Iraqis seeking independence and democracy.

Iraqis also remember the way the companies treated the country after it gained its independence and how the companies held Iraqi production down, to manage international supply and price levels. Iraqi's also remember the fierce company resistance to Iraqi proposals for new exploration contracts in the 1960s. Such sentiments would doubtless not change after the ouster of Saddam Hussein.

These feelings are magnified by US support for Israel and by the long, punishing US-UK-UN sanctions. The US-UK would thus find it very politically difficult to create an indigenous post-Saddam government that would agree to a sweetheart deal for the US-UK companies. For this reason, the US-UK have announced that they are planning a military government that will "purge" Iraqi politics of its Baathist and nationalist elements and remain in power more than a year or as long as necessary. Though the US-UK official announcements speak about "human rights" and "democracy," it would appear that the main goal of the war and "regime change" is to carry out the oil deals and re-fashion Iraqi politics on a new and more conciliatory and pro-US basis. Scenarios circulating in Washington talk about rapid military seizure of the oil fields, rebuilding oil infrastructure and protecting the oil production system from the negative effects of local politics.

http://www.globalpolicy.org/component/c ... 40510.html

Oil Companies in Iraq


By James A. Paul
Global Policy Forum
November 2003


The United States and the United Kingdom did not wage war on Iraq for the officially stated reasons. That much is obvious. The world's superpower and its key ally were not acting because they feared the Iraqi government's weapons of mass destruction or its ties with the terrorist group al-Qaeda. Nor were they fighting to bring democracy to the Middle East, a region where the two governments had long supported reactionary monarchs and odious dictators, including Iraqi president Saddam Hussein himself.

It is time, then, to set aside the sterile discussions about "intelligence failures" and to consider a deeper reason for the conflict. This paper will argue that the war was primarily a "war for oil" in which large, multinational oil companies and their host governments acted in secret concert to gain control of Iraq's fabulous oil reserves and to gain leverage over other national oil producers. In arguing for the primacy of oil, we do not imply that other factors were not at play. The imperial dreams of the neo-con advisors in Washington contributed to the final outcome, as did the re-election strategies of the political operatives in the White House. But the Iraq war did not emerge solely from the Bush administration. As we shall see, it involved both London and Washington, through the course of many governments. And it emerged from a decades-long effort by the world's largest companies to appropriate the planet's most lucrative natural resource deposits.

Several elements contribute to make the case for an oil war: the enormous, long-term political influence of the oil companies, the close personal ties between the companies and their host governments, the long history of prior conflicts and wars over Iraqi oil, and the enormous potential profitability of the Iraqi fields. To consider the evidence, and answer the questions of skeptics, we must begin by reviewing the companies' power and influence over a period of many decades. Later, we will turn to the immediate events leading up to the 2003 war itself.

Companies' Great Size & Global Presence

By the early 20th Century, when most business firms were relatively small by modern standards and purely national in scope, Standard Oil and Royal Dutch Shell were already global companies that controlled a worldwide network of production and distribution. By 1911, they held rich production fields in the Dutch East Indies (today's Indonesia), Romania, Russia, the United States, Venezuela and Mexico, as well as refineries, pipelines, rail cars, tankers, storage depots and other facilities in dozens of countries. Standard Oil alone had a fleet of nearly 100 ships.1

Large as they were a century ago, the oil companies have since grown mightily, due to worldwide collusion in production and pricing and to fierce backing by their host governments. For decades, the so-called "Seven Sisters," all of them firms based in the US or the UK, dominated the industry and ruled the global oil market through a tightly-knit cartel. Though nationalizations by producer countries in the 1970s dealt a serious blow to these firms, they continued to dominate the oil industry through control over the"downstream" end of the business -- transport, refining, petrochemicals, and marketing -- while building new production facilities in more friendly locations.2

Today, a wave of mergers has given the successor companies a new and unprecedented scale, reducing the major firms to just five. In 2003, annual revenues of the leader, ExxonMobil, were an astonishing $247 billion.3 By way of comparison, Exxon's revenue is vastly greater than such well-known international companies as Walt Disney ($25 billion) and Coca Cola ($19 billion) and it is larger than the revenues of 185 national governments, including Brazil, Canada, Spain, Sweden and the Netherlands. Only the world's six richest countries – the US, Japan, Germany, France, Italy and the UK – had revenues above this level. 4

Among the world's fifteen largest corporations listed in the 2002 "Fortune Global 500," five were oil companies. After US-based Exxon came the UK giants Shell and British Petroleum (BP), the mammoth French firm Total, and the huge US-based Chevron. Compared to the large automakers, with their anemic profits, the oil companies stand out among the world's biggest corporations for their high profitability. In 2001 (and again in 2003), Exxon earned the world's highest profits. In 2003, its earnings reached a record $22 billion, more than General Motors, Ford, DaimlerChrysler and Toyota taken together.5

Oil, Economy & Warfare

To understand the special "national security" status enjoyed by the oil companies, we must first consider oil's economic importance and then its central role in war. Oil provides nearly all the energy for transportation (cars, trucks, buses airplanes, and many railroad engines). Oil also has an important share of other energy inputs – it heats many buildings and fuels industrial and farm equipment, for example. Overall, oil has a 40% share in the US national energy budget. Beyond energy, oil provides lubrication and it is an essential feedstock for plastics, paint, fertilizers and pharmaceuticals. Sometime in the future, the world may switch to renewable energy and other non-oil inputs, but oil now reigns as the indispensable ingredient of the modern economy. For this reason, governments are nervous about their national oil supply.6

Modern warfare particularly depends on oil, because virtually all weapons systems rely on oil-based fuel – tanks, trucks, armored vehicles, self-propelled artillery pieces, airplanes, and naval ships. For this reason, the governments and general staffs of powerful nations seek to ensure a steady supply of oil during wartime, to fuel oil-hungry military forces in far-flung operational theaters. Such governments view their companies' global interests as synonymous with the national interest and they readily support their companies' efforts to control new production sources, to overwhelm foreign rivals, and to gain the most favorable pipeline routes and other transportation and distribution channels. "One of our greatest helpers has been the State Department," mused John D. Rockefeller, founder of Standard Oil in his 1909 book, Random Reminiscences of Men and Events. "Our ambassadors and ministers and consuls have aided to push our way into new markets in the utmost corners of the world."7

The oil industry gained its crucial role in military affairs during World War I. In the run-up to the war, the world's navies converted from coal to oil-fired ships, because of significant advantages in speed and range of operation. The war also marked the first military uses of the automobile, truck, tank and airplane. Belligerents on both sides faced severe oil shortages, but the Allies eventually gained the upper hand with vastly greater supplies. Lord Curzon, a member of the British War Cabinet, concluded that "the Allied cause has floated to victory upon a wave of oil."8

Government policy makers give the highest priority to oil matters during wartime, as many historical studies show. Japanese and German officials made desperate efforts to gain oil sources during World War II while US and British leaders did their utmost to deny them this resource. But even allies could be bitter oil rivals. In many wartime meetings and cables, President Franklin Roosevelt and Prime Minister Winston Churchill wrangled over their countries' respective post-war shares of Middle East oil reserves.9 After the war, George Kennan, Director of the US State Department's Policy Planning Division, reacted with unbridled enthusiasm at US oil companies' primacy (to the exclusion of Britain) in the newly-discovered Saudi Arabia fields. The United States, he wrote, had just acquired "the greatest material prize in world history."10

Oil Rents, Corruption & Conflict

Just as governments like the US and the UK need oil companies to secure fuel for their global war-making capacity, so the oil companies need their governments' military power to secure control over global oilfields and transportation routes. It is no accident, then, that the world's largest oil companies are located in the world's most powerful countries.

Power has primacy in the oil business, because of the incomparable value of key fields. Production costs vary widely from one place to another, leading to intense competition for the lowest-cost locations. The difference between cost and sales price is so large that economists sometimes refer to the gap as a "rent" – an extraordinary profit enjoyed by a producer with a unique market advantage.11

All producer companies want to gain control of such lucrative profits, by fair means or foul. Company rivalry typically leads beyond ordinary market-based competition. As many studies show, companies and their sponsor governments do not shrink from backing dictatorial governments, using bribery and corruption, promoting civil violence and even resorting to war, to meet their commercial goals and best their competitors.12 The modern history of the Middle East bears witness to this process. In one notorious example, US intelligence services recruited in 1959 a young Iraqi thug named Saddam Hussein to take part in the assassination of Iraqi Prime Minister Abd el-Karim Qasim. Washington feared that the nationalist Qasim might act independently and alter the favorable terms under which their oil companies operated.13 A few years earlier, in 1953, the CIA engineered a coup in Iran, overthrowing the democratic government of Mohammed Mossadegh and installing the autocratic Shah, in order to gain control over Iranian oil and redistribute British production shares to US companies.14

A recent court case in France, involving high officials of the national oil company Elf Aquitaine, provides a glimpse of more recent operations in this world of oil intrigue and covert competition between the giant companies. The case revealed bribes, espionage, sexual favors, arms smuggling, civil strife and plots to overthrow governments, all with the complicity of French military and intelligence services as well as politicians at the highest levels. These actions had a terrible effect on a number of oil-producing countries, mostly in Africa. They spread malfeasance, corruption and anti-democratic practices in France as well. 15

Special Government Favors and "National Security"

Those who deny oil company complicity in the Iraq War always insist that the companies have little political influence, that they are "out of the loop" in Washington, that they are just one industry group among many others. These arguments are utterly false. The oil companies have always enjoyed "insider" privileges with the US and UK governments, resulting in many unique favors in the name of "national security."

The United States government offers the companies extremely favorable tax treatment, including the "oil depletion allowance" and "intangible drilling costs" – far more than the ordinary capital depreciation available to other companies. In 1960, at the behest of the National Security Council, the international companies obtained the lucrative "foreign tax credit," enabling deductions for taxes or royalties paid to foreign governments. In 1974, while the US corporate tax rate was 48%, the nineteen largest oil companies paid a tax rate of only 7.6%.16

The companies have also enjoyed unofficial immunity from anti-trust or anti-monopoly laws. Though the US government knew for decades about the international oil cartel, federal authorities took no enforcement action until 1952, when President Harry Truman ordered a criminal anti-trust suit. The companies mobilized all their legal and political muscle to quash the case. General Omar Bradley, Chairman of the Joint Chiefs of Staff, reportedly approached the President and successfully urged that the "national security" required a softening of the government's legal stance. Shortly afterwards, the National Security Council decided on various limitations to the suit that further weakened the government's case. Though the judicial process lumbered on for fifteen years, the oil companies had nothing to fear and remained safely protected by the national security umbrella. Today, after a decade of mega-mergers, the companies still escape anti-trust scrutiny.17

US military/security policy has served the oil companies as comprehensively as have the tax and legal rulings. Virtually every US presidential security doctrine since World War II has aimed at protecting company interests in the oil-rich Persian Gulf. The Truman Doctrine, the Eisenhower Doctrine, and the Nixon, Carter, and Reagan Doctrines all asserted Washington's special concerns in the Gulf and arrogated to the United States special rights to "protect" or "defend" the area. Recently-released secret papers show that during the oil crisis and Arab oil embargo of 1973, Washington seriously considered sending a military strike force to seize some of the region's richest fields – in Saudi Arabia, Kuwait and Abu Dhabi.18

In 1979, President Jimmy Carter set up the US Central Command, a permanent military force designed to intervene in the Middle East on short notice. Presidents have expanded and strengthened this force several times since. Headquartered in Florida, but with a number of bases in the Middle East, the command maintains pre-positioned supplies and heavy weapons at Diego Garcia in the Indian Ocean and it can call on strike aircraft units, global satellite intelligence, cruise missiles, rapidly deployable ground troops and carrier-based naval fleets.19

In testimony to Congress in 1999, General Anthony C. Zinni, commanding officer of the Central Command, affirmed the importance of the Persian Gulf region, with its huge oil reserves. It is a "vital interest" of "long standing," he said, and the United States "must have free access to the region's resources."20

Close Personal Ties between Companies and Governments

Given the close political relations between the oil companies and their governments, it should be no surprise to find close ties at the personal level binding companies and governments together. The career of Allen Dulles serves as a case in point. He began as a US diplomat in the Middle East and rose to be chief of the Near East section of the State Department. In the early 1920s, he led the campaign to win US oil firms' participation in Iraq. Later he served as a corporate lawyer at Sullivan and Cromwell, New York's leading counsel for the oil industry. After wartime intelligence service, he was named head of the CIA by President Eisenhower. As CIA chief, he arranged for the overthrow of Mossadegh, winning a place in Iran's rich oil fields for US firms. In every assignment he consistently served company interests.21

Max Thornberg came to the US State Department as senior petroleum advisor in 1941, directly from Bahrein Petroleum, a joint venture of Standard Oil of California. Thornberg operated nearly independently of his government superiors. He continued to receive his company salary, informed company executives of private government meetings and actively promoted company proposals. He apparently could not conceive of a conflict of interest. Having worked in the industry his whole life, he thought of industry goals and those of the US government as being identical.22

The administration of President George W. Bush represents an especially close set of personal ties between the oil companies and the government – at the very highest level. The president and his father were both longtime industry insiders from Texas and chief executives of their own oil companies. Other oil figures at the top of the administration include Vice President Dick Cheney, former CEO of Halliburton, the nation's largest oil-services company, and National Security Advisor Condolezza Rice, a former director of Chevron Texaco, after whom the company named one of its supertankers. These very visible figures give the administration its peculiarly strong oil flavor. In the earliest days of the administration, they promoted a number of striking industry-favorable policy decisions, such as the rejection of the Kyoto Treaty on global warming, the ouster of the head of the Intergovernmental Panel on Climate Change, and the elaboration of a strongly pro-oil national energy plan.

In the UK, close ties likewise bind companies and successive governments together, The government even held a majority stake in BP, with seats on the board, until 1987. By contrast to the United States, where the oil companies are first among such peers as General Motors, Walmart and Citigroup, in the UK, oil giants Shell and BP tower far above the next tier firms like British Telecom, Unilever and ICI.23 From such heights, UK oil executives speak almost as unofficial members of government. In recent years, a number of personal ties stand out, especially the close friendship between Prime Minister Tony Blair and BP CEO John Browne (Lord Browne of Maddingley). The Blair-Browne relationship was so close that wags in the press called the company "Blair Petroleum," though it would have been more accurate to say that Blair was the BP Prime Minister. At least a dozen BP executives held government posts or sat on official advisory committees, including Browne's immediate predecessor David Simon (Lord Simon of Highbury). Simon had stepped down as BP CEO to serve as Blair's unelected Minister for European Trade and Competitiveness from May 1997 to July 1999.24 Later on, Tony Blair's longtime friend and personal assistant Anjl Hunter, director of government relations and known as "the gatekeeper" in Downing Street, joined BP as head of public relations in the summer of 2002, just as the war was actively brewing.25

After a century of closely-combined action on the global stage, company chieftans and government leaders see their relationship as cooperative and thoroughly complementary. In April, 2003, shortly after the war in Iraq, Lord Browne responded tartly to critics by saying: "It is quite ethical and appropriate for a global company, based in the UK, to be supported by the British government."26 He did not, of course, go into the details.

Seven Oil Wars to Control Iraq

Before coming to the Iraq war of 2003, we will review the modern history of conflicts over Iraq. There have been a total of seven wars in the past ninety years, all closely related to oil. What follows is a thumbnail sketch of those conflicts, to suggest the constant military struggle over this oil-rich territory.

1. Colonial Conquest (1914-1. The first conflict took place during World War I, when the British captured the area from the Ottoman Empire during a bloody four-year campaign. Lord Curzon, a member of the War cabinet who became Foreign Minister immediately after the war, famously stated that the influence of oil over British policy in Iraq was "nil." "Oil," said Curzon, "had not the remotest connection with my attitude over Mosul," the major city in Iraq's northern oil-bearing region.27 Studies by a number of historians have shown that Curzon was lying and that oil was indeed the major factor shaping British policy towards Iraq.28 Sir Maurice Hankey, Secretary of the War Cabinet, even insisted enthusiastically in a private cabinet letter that oil was a "first class war aim."29 London had ordered its forces to continue fighting after the Mudros Armistice was signed, so as to gain control of Iraq's main oil-producing region. Fifteen days later, the British army seized Mosul, capital of the oil region, blocking the aspirations of the French, to whom the area had been promised earlier in the secret Sykes-Picot agreement.30

2. War of Pacification (1918-1930). To defend its oil interests, Britain fought a long war of pacification in Iraq, lasting from 1918 throughout the next decade. The British crushed a country-wide insurrection in 1920 and continued to strike at insurgents with poison gas, airplanes, incendiary bombs, and mobile armored cars, using an occupation force drawn largely from the Indian Army. This carnage killed or wounded thousands of Iraqis, burning villages and extracting colonial taxes by brutal means. Winston Churchill, as Colonial Secretary, saw the defense of Iraq's lucrative oil deposits as a test of modern weaponry and military-colonial use of force, enabling Britain to hold the oil fields at the lowest possible cost.31

3. Re-Occupation (1941). Though Britain granted nominal independence to Iraq in 1932, it maintained a sizeable military force and a large air base in the country and continued to rule "indirectly." In 1941, fearful that Iraq might fall into the hands of the Axis, London again decided to seize direct control of the country through military force. Broad geo-strategic wartime goals drove this campaign, but not least was British concern to protect the Iraqi oil fields and keep them in British hands, free not only from German but also from US challenge.32

4. Iran-Iraq War (1980-8. In 1980, Iraq attacked its neighbor, Iran. A long war ensued through 1988, a savage conflict causing hundreds of thousands of casualties on both sides, costing tens of billions of dollars and destroying much of both countries' oilfields and vital infrastructure. Foreign governments, interested in gaining geo-strategic advantage over both nations' oil resources, promoted, encouraged and sustained the war, some arming both sides. The US and the UK supplied Iraq with arms, chemical and biological weapon precursors, military training, satellite targeting and naval support. Other powers participated as well, notably France, Germany and Russia.33 The big oil companies profited mightily, as war conditions kept Iraqi and Iranian oil off the market, driving worldwide prices substantially higher. By bankrupting the two governments and ruining their oil infrastructure, the war also potentially opened the way for the return of the companies through privatization in the not-too-distant future. But after the war, when Iraq and Iran turned to Japanese oil companies for new private investments, including a Japanese role in Iraq's super-giant Majnoun field, the stage was set for yet another conflict.

5. Gulf War (1991). Following the Iraqi invasion of Kuwait in August 1990, the US decided to intervene militarily and Washington assembled a number of secondary military partners, including the UK and France. As US President George Bush summed up the oil-centered threat posed by Saddam Hussein at the time: "Our jobs, our way of life, our own freedom and the freedom of friendly countries around the world would all suffer if control of the world's great oil reserves fell into the hands of Saddam Hussein."34 US forces heavily bombed Iraqi cities and military installations and then launched a short and decisive ground war, ending the Iraqi occupation of its neighbor. The war badly battered Iraq, destroying much of its electricity and water purification systems and claiming 50-100,000 casualties.

6. Low Intensity Conflict During the Sanction Period (1991-2003). After the armistice, the UN's pre-war embargo continued, because the US-UK used their Security Council vetoes to block its lifting. The sanctions imposed a choke-hold on Iraq's economy, restricted oil sales and kept the country's oil industry in a shambles. By blocking foreign investment and preventing reconstruction, the sanctions further ruined the country's economic base. At the same time, with Iraqi supplies largely off the market, international oil prices were supported and company profits benefited. The US and the UK declared their goal to oust Saddam and their intelligence services made many efforts to assassinate him or to overthrow his government by military coup. The US-UK also established "no-fly" zones in much of Iraqi airspace, using air patrols to launch periodic attacks on Iraqi military targets. Four times, the US-UK launched major attacks, using scores of strike aircraft and cruise missiles – in January 1993, January 1996, June 1996 and December 1998. Though oil companies from a number of other countries negotiated with the Iraqi government for production deals, none dared to challenge the sanctions (and the Anglo-American companies) by beginning production under such risky circumstances.

7. Iraq War (2003). This war, launched by the US in spite of strong opposition at the UN, overthrew the government of Saddam Hussein and brought the US-UK coalition into direct rule over Iraq and in direct control of the oil fields. The war caused further deterioration of Iraq's infrastructure, many casualties, and a chaotic and dysfunctional economy. Though the coalition rules Iraq, it has faced a tough armed resistance during many months following the main conflict. War number eight, the coalition's war of pacification, has already begun.

The Exceptional Lure of Iraqi Oil

Constant wars hint at the exceptional lure of Iraq's oil fields. Iraq's oil is of good quality, it exists in great quantity, and it is very cheap to produce, offering the world's most extraordinary and profitable oil rents.

Officially, Iraq's reserves are stated as 112 billion barrels, the world's second largest after Saudi Arabia. According to the US Department of Energy, Iraq's real reserves may be far greater – as much as 3-400 billion barrels after further prospecting.35 Iraq's Senior Deputy Oil Minister confirmed high estimates on May 22, 2002, in an interview with Platts, a leading industry information source. He said: "we will exceed 300 billion barrels when all Iraq's regions are explored," and he went on to affirm that "Iraq will [then] be the number one holder of oil reserves in the world."36

Iraq's oil is the world's cheapest to produce, at a cost of only about $1 per barrel. The gigantic "rent" on Iraq's oil, during decades of production, could yield company profits in the range of $4-5 trillion dollars – that is, $4-5 million, millions. Assuming fifty years of production and 40% royalties, Iraq could yield annual profits of $80-90 billion per year – more than the total annual profits of the top five companies, even in the banner year of 2003.37

As the world's other oilfields seriously deplete during the next two decades, global production will increasingly depend on the enormous reserves of the Persian Gulf region. Iraq will then represent a large and increasing percentage of the world's supplies – perhaps over thirty percent. An international company must hold a serious stake in Iraq if it is to retain its status as a major player in the world's oil industry. The Anglo-American giants know they must gain the lion's share in Iraq or decline irrevocably.

Shortly before the war, industry experts described Iraq as a future "gold rush," where the companies would battle to gain control of key reserves.38 At that time, a well-informed diplomat at the UN commented bluntly: "Exxon wants Majnoun and they are determined to get it."39 And a longtime industry observer said: "There is not an oil company in the world that doesn‘t have its eye on Iraq."40

Control of Reserves

Oil companies' future profits – and their current share prices and market capitalization – depend to a large degree on their control of reserves. The 1972 oil nationalizations in Iraq pushed the US and UK companies completely out of the country. Before that date, they held a three-quarter share of the Iraq Petroleum Company, including Iraq's entire national reserves. After 1972, all that oil disappeared from their balance sheets.

In the 1980s and 90s, their rivals in France, Russia and even Japan and China began to make deals that led towards lucrative production sharing agreements, allowing those competitors to gain a large potential share of Iraq's oil reserves. The sanctions regime, enforced under the United Nations and maintained at the insistence of the US and UK from 1990 to 2003, prevented these deals from coming to fruition, thus protecting the future stake of the US-UK companies.

In recent years, as older fields worldwide have dwindled, the companies have faced rising replacement costs for their reserves. According to a 2002 report by energy consultants John S. Herold, "finding costs" for new reserves rose 61% in 2001, pushing replacement costs to $5.31 a barrel.41 "Finding new sources of oil has become the industry's main challenge, as old fields in North America and Europe are being tapped out," commented the Wall Street Journal in early 2003.42 Imagine, then, the lure of the vast Iraqi fields, offering nearly free acquisition and a huge addition to total reserves. As Fadel Gheit of Fahnstock & Co. in New York concluded, Iraq "would be a logical place in the future for oil companies to replace their reserves."43

New Iraq Contracts and Moves toward War

The big US-UK companies made no secret of their strong desire for Iraqi oil. BP and Shell conducted secret negotiations with Saddam Hussein, while Exxon and Chevron took a harder line and waited for Washington to eliminate Saddam covertly. In 1997, as the sanctions lost international support, Russia's Lukoil, France's Total, China National and other companies struck deals with the government of Iraq for production sharing in some of Iraq's biggest and most lucrative fields. Lukoil reached an agreement for West Qurna, Total got Majnoun, while China National signed on for North Rumaila, near the Kuwaiti border.44 Paris, Moscow and Beijing, as Permanent Members in the UN Security Council pressed for an easing of the sanctions, with support from a growing number of other countries. Grassroots movements, concerned about Iraq's humanitarian crisis, called on the UN Security Council to end the sanctions forthwith.

In 1997-98, the US companies saw the writing on the wall. With Iranian fields already slipping into the hands of competitors, such losses in Iraq threatened to reduce them to second rank and confront them with fierce international competition and downward profit pressure. The companies stepped up their lobbying in Washington and made their wishes for Iraq oil crystal clear. "Iraq possesses huge reserves of oil and gas – reserves I'd love Chevron to have access to," enthused Chevron CEO Kenneth T. Derr in a speech at the Commonwealth Club of San Francisco.45

Almost as soon as Iraq signed the new oil agreements, Washington began to deploy military forces near the country's borders in a very threatening forward posture. Operation Phoenix Scorpion and Operation Desert Thunder in various phases lasted almost continuously from November 1997 through December 1998. In Washington, the rhetoric grew increasingly hard-line and threatening. On January 26, 1998 members of the right-wing Project for a New American Century sent a letter to President Bill Clinton warning that the containment policy "has been steadily eroding over the past several month" and calling for "removing Saddam Hussein from power."46 CIA sources told journalists and members of Congress that Saddam was hiding large stocks of deadly weapons. Congress held hearings and began drafting legislation. The President asked the Pentagon to plan a variety of military options, ranging from limited strikes (later designated Operation Desert Fox) to full-scale war (Operation Desert Lion).

On May 1, President Clinton signed a law that provided $5 million in funding for the Iraqi opposition and set up "Radio Free Iraq." That was only the beginning. On May 29, the Project for a New American Century sent an open letter to Congress on Iraq, insisting that the US government was not sufficiently firm with Saddam, attacking what it called the President's "capitulation" and warning of severe "consequence" to US interests. Among the signatories of this high-profile letter were Donald Rumsfeld, Paul Wolfowitz, Richard Perle, Elliot Abrams, John Bolton and others who would later take high posts in the Bush administration.47 The Clinton White House was ready to oblige. On August 14, the President signed another law (PL 105-235) that accused Iraq of building weapons of mass destruction and failing to cooperate with UN inspectors, declaring ominously: "Iraq is in material and unacceptable breach of its international obligations." Finally, on October 31, the President signed the "Iraq Liberation Act of 1998" (PL 105-33, a text still more bellicose. "It should be the policy of the United States to support efforts to remove the regime headed by Saddam Hussein from power in Iraq," read the key sentence. In London, government leaders made similar expressions of determination and a UK Strategic Defence Review of July 1998 affirmed readiness to use force. "Outside Europe," the Review concluded, "the greatest risks to our national economic and political interests . . . will remain in the Gulf."48

On December 16-19, 1998, the US-UK launched Operation Desert Fox. Hundreds of strike aircraft and cruise missiles hit Baghdad and other major Iraqi targets, including an oil refinery. The attacks ended the UN arms inspection program, pre-empting any declaration that Iraq was nearly free of mass destruction weapons. Following Desert Fox, US-UK air forces patrolled the "no-fly" zones with new, more aggressive rules of engagement and regular attacks on Iraqi targets.

This increasingly aggressive policy towards Iraq expressed a hardening conviction among leaders in the US and the UK that Saddam Hussein could not be ousted by covert means, and that invasion and direct control over Iraq's oil would now be required.

The Bush Administration Heads for War

The new Bush administration came into office in January 2001 at this critical juncture. Revelations by former Secretary of the Treasury Paul O'Neill inform us that the new administration started planning for an invasion of Iraq almost immediately. According to O'Neill, Iraq was "Topic A" at the very first meeting of the Bush National Security Council, just ten days after the inauguration. "It was about finding a way to do it," reports O'Neill, "That was the tone of the President, saying ‘Go find me a way to do this.'"49 Meanwhile, the President ordered stepped-up overflights and provocative attacks on Iraqi targets under a plan, evidently known as Operation Desert Badger. On February 16, US aircraft bombed Iraqi radar installations north of the no-fly zone and very close to southern limits of Baghdad. Readily audible from the Iraqi capital, this attack drew wide media comment.

Just a few weeks later, the hastily-organized National Energy Policy Development Group, chaired by Vice President Cheney, studied the challenge posed by French, Russian and other companies. One of the documents produced by the Cheney group, made public after a long court case, is a map of Iraq showing its major oil fields and a two-page list of "Foreign Suitors for Iraqi Oilfield Contracts." The list showed more than 40 companies from 30 countries with projects agreed or under discussion, but not a single US or UK deal.50 The list included agreements or discussions with companies from Germany, India, Italy, Canada, Indonesia, Japan and other nations, along with the well-known French, Russian and Chinese deals. The Cheney Group's report, released in May, warned ominously of US oil shortfalls that might "undermine our economy, our standard of living, our national security."

The Bush administration seems to have reached a near-decision on war with Iraq in the late spring of 2001. The events of September 11, 2001 and the US war on Afghanistan, postponed the timetable of operations, but may have helped solidify the support of the UK ally. According to Sir Christoper Meyer, the British ambassador in Washington at the time, President Bush raised the issue of Iraq with UK Prime Minister Tony Blair at a private dinner at the White House just nine days after September 11. Bush asked for British support for removal of Saddam Hussein from power, a clear reference to a military operation. According to Meyer's account, Blair gave his silent assent to the proposal. 52 As the wheels of policy began to turn in the Pentagon and the While House, oil industry publications like Platts and Oil and Gas Journal reflected the growing sense of urgency within the industry that the time for action had arrived. Early in 2002, more than a year before the conflict, Bush and Blair affirmed their plans for war and (while keeping their decision secret) stepped up efforts to prepare their governments and their publics for the use of force.

As war talk increased in Washington and at the UN, oil issues came into the open. The influential Heritage Foundation published in September a report on "The Future of a Post-Saddam Iraq" which called for the privatization of Iraq's national company and warned that competitor companies would lose their Saddam-era contracts. The companies, the Bush administration and the Iraqi opposition held many meetings over post-war oil. The Washington Post reported in September that the big companies were "maneuvering for a stake" in postwar Iraq and that the war could cause major "reshuffling" of world petroleum markets. Former CIA Director James Woolsey told the Post that the US would use access to post-war oil as a bargaining chip to win French and Russian support for the war.51 Also at this time, Iraqi exile leaders said publicly that a post-Saddam government would "review" all the foreign oil agreements. Ahmad Chalabi, leader of the Iraqi National Congress, US favorite as heir to the Iraqi leadership, was quoted as saying: "American companies will have a big shot at Iraqi oil."53

Russian officials told the London-based Observer newspaper that they feared a post-war nullification of the large Russian contracts, with the most lucrative deals given over to US companies. The Observer quoted one official in Moscow as saying that the impending conflict could be called "an oil grab by Washington." In France, it was reported that Total was actually in negotiations with the US government "about redistribution of the oil regions between the world's major companies."54

On October 21, Deutsche Bank added to the war-for-oil speculation by publishing a major investor-research study entitled: "Baghdad Bazaar: Big Oil in Iraq?" The report, which noted that "war drums are beating in Washington" and "Big Oil is positioning for post-sanctions Iraq," analyzed the upward stock market potential of the oil industry in light of declining world reserves and Iraq's post-war potential. On November 1, Youssef Ibrahim of the Council on Foreign Relations, warned in the International Herald Tribune that the coming war was "bound to backfire," calling it a "a misguided temptation to get more oil out of the Middle East by turning a ‘friendly' Iraq into a private American oil pumping station."55

Meetings continued all fall and into the new year in Washington, London, Houston and elsewhere, between government officials, oil executives and Iraqi opposition leaders in various combinations. US envoys held private talks on oil in Moscow, Paris, Beijing and other capitals. In December, there was a meeting of oil company figures at a resort near Sandringham in Scotland, featuring a talk by the former head of Iraq's Military Intelligence Agency. Topics on the agenda included Iraq's future oil potential and whether post-Saddam Iraq might pull out of OPEC.56 In the Pentagon, war planners were considering how to seize Iraq's oil fields in the first hours and days of the impending conflict.

The War and After

US-UK forces invaded Iraq on March 20, 2003, seizing the major oilfields and refineries almost immediately. When coalition forces later entered Baghdad, they set a protective cordon around the Oil Ministry, while leaving all other institutions unguarded, allowing looting and burning of other government ministries, hospitals and cultural institutions. Looters sacked the National Museum and burned a wing of the National Library, but the Oil Ministry stood relatively unscathed, with its thousands of valuable seismic maps safe for future oil exploration.

President Bush quickly appointed Phil Carroll, a former high-ranking US oil executive, to assume control of Iraq's oil industry and on May 22, Bush issued Executive Order 13303 giving immunity to oil companies for all activities in Iraq and deals involving Iraqi oil. On the same day, under pressure from the US and the UK, the UN Security Council passed Resolution 1483 which lifted the former sanctions and allowed the occupation authorities to sell Iraqi oil and put the proceeds in an account they controlled. Every step in the early post-war period confirmed the centrality of oil, not as an Iraqi national resource to be protected, but as a spoil of war to be controlled. Now, many months after the war, the picture remains the same.

Company Bonanza or Greedy Overreach?

Was the war a bold and successful calculation or a major error, resulting from official hubris and company greed? The war's authors hoped to affirm a New American Century and company pre-eminence, but the conflict instead could limit US global ambitions and set back oil company aspirations. It is too early to be certain of the outcome, but we can make a few preliminary conclusions.

The companies hoped that the Iraq war would allow them to take over Iraq's oil reserves with only a minimum of difficulty. Self-confident assurances by pro-war ideologues in Washington reinforced the widely-held conviction that the sole superpower could easily mobilize international support and that the people of Iraq would welcome the invaders and applaud the "liberation" offered by a US occupation government. The hawks expected that they could rapidly set up a pliant government and privatize the Iraqi industry or distribute production agreements speedily to US firms. But these ideas proved illusory. Instead, Bush and Blair faced enormous worldwide opposition to the war. And in spite of US forces' rapid seizure of the country, they now grapple with economic chaos and an intense and lethal resistance movement.

The companies, it should be said, are not in a great hurry. They plan and act on decades-long time horizons. They can wait out the insecurity of the present if the precious Iraqi oil fields fall dependably into their hands sometime in the next few years. But it is by no means certain that the Anglo-American giants will get their way as easily in Iraq as they did in Washington. As they wait, the violence of pacification and resistance engulfs the country. War number eight gets under way.

Iraq: the Struggle for Oil (August 2002)
Oil in Iraq: the Heart of the Crisis (December 2002)
The Iraq Oil Bonanza: Estimating Future Profits (January 28, 2004)

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Notes

1See, for example, Daniel Yergin, The Prize (New York: Simon & Schuster, 1991).

2The Seven Sister companies arose after the federal anti-monopoly breakup of the Standard Oil Trust in 1911. They included three Standard Oil spinoffs, Standard Oil Company of New Jersey, Standard Oil Company of New York , and Standard Oil Company of California, as well as Texaco, Gulf, and the UK giants Royal Dutch Shell and British Petroleum. See Anthony Sampson, The Seven Sisters: the great oil companies and the world they made (London: Hodder & Staughton, 198

3Data from ExxonMobil web site, announcement of 2003 earnings, January 29, 2004, http://www.exxonmobil.com/corporate/fil ... s_4q03.pdf.

4Data from CIA World Factbook web site (www.cia.gov/cia/publications/factbook) and Fortune Global 500 (www.fortune.com/fortune/fortune500). Note that we are comparing company revenue with government revenue, not with national GNP. The seventh richest government, the Netherlands, had a revenue in 2001 of $134 billion, far below Exxon's figure.

5See tables posted on the Global Policy Forum web site, based on information from Fortune and the CIA Factbook – www.globalpolicy.org/socecon/tncs/oiltable.htm - www.globalpolicy.org/socecon/tncs/oiltncs2002.htm - www.globalpolicy.org/socecon/tncs/tncstat2.htm

6Ordinary citizens worry about having a plentiful supply of gas for their automobiles, too. On this basis, the US government has often mobilized its people around aggressive Middle East military policies.

7John D. Rockefeller, Random Reminiscences of Men and Events (New York: Doubleday, 1909)

8Yergin,183.

9Michael B. Stoff, Oil, War and American Security: the search for a national policy on foreign oil 1941-1947 (New Haven: Yale University Press, 1980), 147-50.

10Wilson D. Muscamble, George F. Kennan and the Making of American Foreign Policy (Princeton: Princeton University Press, 1992)

11Rents sometimes result from technical advances, patents, copyrights, and the like, advantages that normally disappear after a period of time. Oil rents are long-lasting and can yield far higher spreads between the normal profit rate and the rate expressed by the rent.

12Virtually all historical studies of the industry provide evidence of this kind. See Yergin (1991) and Sampson (198 See also: Joe Stork, Middle East Oil and the Energy Crisis (New York: Monthly Review, 1976) and Fiona Benn, Oil Diplomacy in the Twentieth Century (New York: St. Martin's Press, 1986).

13Richard Sale, "Saddam Key in Early CIA Plot," United Press International, April 10, 2003. Sale quotes a US operative who knew Saddam at that time saying: "He was a thug – a cutthroat." Saddam was 22 years old at the time of the botched assassination.

14See Kermit Roosevelt, Countercoup, the struggle for the contol of Iran (New York: McGraw-Hill, 1979), a book written by the CIA's coup-maker in Tehran, and Ervand Abrahamian, Iran Between Two Revolutions (Princeton: Princeton University Press, 1982).

15See, for example, Joseph Fitchett and David Ignatius, "Lengthy Elf Inquiry Nears Explosive Finish," International Herald Tribune," February 1, 2002 and Nicholas Shaxon, "The Elf Trial: political corruption and the oil industry," in Transparency International, Global Corruption Report 2004 (London: Pluto Press, 2004), pp. 67-71. Almost all the world's oil-producing countries have suffered from abusive, corrupt and undemocratic governments and an absence of durable development. Indonesia, Saudi Arabia, Libya, Iraq, Iran, Angola, Colombia, Venezuela, Kuwait, Mexico, Algeria – these and many other oil producers have a sad record, which includes dictatorships installed from abroad, bloody coups engineered by foreign intelligence services, militarization of government and intolerant right-wing nationalism. On poverty and war in oil-producing countries see Christian Aid, Fueling Poverty: Oil, War and Corruption (London, 2003) and Michael Ross, Extractive Sectors and the Poor (Oxfam America, 2001).

16For a lengthy discussion of the special tax treatment of the companies see John M. Blair, The Control of Oil (New York: Random House, 1976), 187-203.

17Blair (1976), 71-76.

18New York Times, January 2, 2004.

19For a discussion of the Central Command as a force designed for oil-related intervention, see Michael T.Klare, Resource Wars: the new landscape of global conflict (New York: publisher, 2001)

20Testimony of the senate Armed Services Committee, April 13, 1999.

21See Peter Grose, Gentleman Spy: the life of Allen Dulles (Boston: Houghton Mifflin, 1994)

22Stoff (1980), 64-68.

23In 2003, for example, while BP had revenues of $233 billion, British Telecom had revenues of $29 billion, Barclays $26 billion, Lloyds $22 billion, Unilever $20 billion, BAT $18 billion and ICI only $10 billion.

24In recent decades in the UK, government ministers have nearly always been drawn from elected members of parliament, sitting in the House of Commons. Simon had just been named to the unelected House of Lords and had no parliamentary experience or popular constituency.

25On Hunter, see New York Times, August 30, 2003.

26As quoted in Guardian, April 6, 2003.

27Curzon was responding to fierce criticism in parliament and the press. T. Johnson, MP, had said, for example, that "The trail of oil was all over the question of Mosul and Iraq." Curzon wrote three articles in The Times (London) on August 2, 9 and 16, 1924 in which he set forth his denials.

28See Helmut Mejcher, Imperial Quest for Oil: Iraq 1910-1928 (London: Ithaca Press, 1976) and Peter Sluglett, Britain in Iraq 1914-1932 (London: Ithaca Press, 1976)

29A note the Foreign Secretary Arthur Balfour, as quoted in Yergin, 188.

30On the seizure of Mosul, see Mechjer (1976), 42. Merchjer notes that the British also postponed the signing of the armistice to enable their forces to make more progress towards Mosul. See also Sluglett (1976).

31See, for example, David E. Omissi, British Air Power and Colonial Control in Iraq: 1920-1925 (Manchester: Manchester University Press, 1990), Sluglett, V.G. Kiernan, Colonial Empires and Armies: 1815-1960 (Stroud: Sutton, 199.

32Raghid Solh, Britain's 2 Wars with Iraq, 1941-1991 (Reading: Ithaca Press, 1996)

33Dilip Hiro, The Longest War: the Iran-Iraq military conflict (New York: Routledge, 1991)

34As quoted by the New York Times, August 16, 1990

35See US Department of Energy, Energy Information Administration website at http://www.eia.doe.gov/emeu/cabs/iraq.html

36Platts website.

37I have arrived at this figure based on assumptions about four variables. I assume 350 billion barrels of reserves, $30 oil rent average in real terms, 75% recovery rate and 60% company share of the rent (the remainder going to the government). Different assumptions would yield different final estimates. For example, assumptions based on worldwide oil scarcity would drive the number up, while assumptions based on rapid conversion to sustainable energy sources would drive the number down. World Energy Outlook of 2001, published by the International Energy Agency, estimated that the total value of foreign contracts signed by the Iraqi government of Saddam Hussein might reach $1.1 trillion, a. number consistent with mine, since the contracts covered only a fraction of Iraq's total oil potential. See "Scramble to care up Iraqi oil reserves lies behind US diplomacy," Observer, October 6, 2002.

38Author's Interview with an expert, November, 2002.

39Author's Interview with a UN diplomat, November, 2002.

40Interview with a US-based industry observer, November, 2002

41Platts website –www.platts.com/Oil/Resources/

42Susan Warren, "Exxon's Profit Surged in 4th Quarter," Wall Street Journal, February 12, 2004.

43Platt's website, www.platts.com/Oil/Resources/f.. A recent example, not dealing with Iraq, shows the great importance of company reserves. On January 9, 2004, Shell announced that it had revaluated its worldwide reserves downward by 20%. The firm's stock immediately declined by 7%. Shell had reduced its estimated reserves by 3.9 billion barrels, bringing the company's total to 15.4 billion barrels (Exxon's reserves were 22 billion barrels at that time). By contrast, Iraq's single super-giant Majnoun field (promised pre-war to Total) has estimated reserves of 10- 30 billion barrels, while the super-giant West Qurna field (promised to Lukoil) has estimated reserves of 15-18 billion barrels. If Shell could get control of such a field in Iraq, it could more than double its total company reserves and enjoy an enormous lift in its share prices. This demonstrates clearly what is at stake in Iraq, since share valuation brings fifty years or more of future production immediately into the market capitalization of the firm.

44China had become a major player in the Middle East oil game because of its rapid economic growth and huge future oil needs, with Persian Gulf imports estimated to rise from 0.5 million barrels per day in 1997 to 5.5 million barrels per day in 2020.

45As posted on the company web site at www.cherontexaco.com/news/archive/chevr ... -11-05.asp

46Project for a New American Century web site – www.newamericancentury.org/iraqclintonletter.htm

47www.newamericancentury.org/iraqletter.htm

48UK Ministry of Defence website, White Paper, July 18, 2002 – www.mod.uk/issues/sdr/newchapter.htm

49Ron Suskind, The Price of Loyalty: George W. Bush, the White House and the Education of Paul O'Neill (New York, Simon & Schuster, 2004) 174-75

50The Cheney documents were curiously made public in response to a law suit by a conservative organization called Judicial Watch. The administration fought the Judicial Watch case in court, but eventually lost. The "Foreign Suitors" list includes Shell, but lists no contract results with the company. Exxon, Chevron and BP are not on the list at all. Two small UK firms, Branch Energy and Pacific Resources are also to be found on the list.

51Dan Morgan and David B. Ottaway, "In Iraqi War Scenario, Oil is Key Issue as U.S. Drillers Eye Huge Petroleum Pool," Washington Post, September 15, 2002.

52David Rose, "Bush and Blair Made Secret Pact for Iraq War," The Observer, April 4, 2004 53Morgan and Ottaway (2002)

54Ed Vulliamy, Paul Webster and Nick Paton Walsh, "Scramble to Carve up Iraqi oil reserves lies behind US diplomacy," The Observer, October 6, 2002.

55Youssef Ibrahim, "Bush's Iraq adventure is bound to backfire," International Herald Tribune, November 1, 2002.

56Peter Beaumont and Faisal Islam, "Carve-Up of Oil Riches Begins," Observer, November 3, 2002.

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The Iraq Oil Bonanza: Estimating Future Profits


By James A. Paul
Global Policy Forum
January 28, 2004


After the Iraq War of 2003, United States and United Kingdom oil giants are certain to gain privileged access to Iraq's oil resources. Excluded from control over Iraqi oil since the nationalization of 1972, Exxon, BP, Shell and Chevron will now gain the lion's share of the world's most profitable oil fields. Few outside the industry understand the huge stakes in Iraq, which amount to tens of billions of dollars in total potential profits per year.

To estimate the magnitude of potential profits in Iraq, four key variables were used. They aim to show the possible long-term Iraq profits for all private oil companies, assuming that one or more companies will be involved in all the country's producing fields. The exact legal status of Iraqi oil is not at issue here, since the same results could accrue for the companies whether the new government: (1) eventually privatizes the industry (which seems unlikely) or (2) maintains a national company which enters into production sharing agreements that offer the companies favorable terms.

The analysis uses four key variables, each of which is independent of the others. These variables are illustrated in Table 1 below, which shows four possible outcomes for each of the four variables. Note that there is no necessary relationship between the variables in each row, so that (for example) reserves might be 400 billion barrels but the recovery rate might be 65% and the oil rent average $30.

The "oil reserves" estimates follow estimates given by industry experts and those published on the US Department of Energy website. The "oil rent average" refers to the very large spread between the cost of production (estimated at $1 per barrel) and the price of a barrel of oil on the international markets. The international price estimate is a fifty-year average, in real (inflation adjusted) terms, based on oil prices for 2004. Thus the lowest estimate assumes a very low average price of $21 per barrel, while the highest estimate assumes a high price of $41 per barrel under conditions of increasing future scarcity. The "recovery rate" is the percentage of reserves actually brought to the surface, a percentage that is generally believed to be high in Iraq compared to industry norms because of the very good quality of Iraq's oil reservoirs. The "rent appropriated by private companies" estimates the share of the total rent (profit) taken by the companies after government taxes, fees, production-sharing agreements and other deductions. Though companies have taken much lower shares since the 1970s, the current trend is moving towards higher shares in the range of the estimates.

Four variables were used to estimate potential profits for the oil companies in Iraq. In order to understand the magnitude of these profits, it is useful to know that the worldwide profits of the world's five largest oil companies in 2002 were $35 billion. Our estimate of the "most probable" annual profits in Iraq are $95 billion, three times this sum! Total company profits in Iraq, over time, would be an enormously large sum – ranging from a low of about $600 billion to a high of about $9 trillion.

Our "most probable" estimate of corporate profits assumes the following:

1. 350 billion barrels of oil reserves;

2. $30 oil rent average over 50 years;

3. Recovery rate of 75%; and

4. Percentage of rent appropriated by private companies at 60%.

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