While I think this paper overstates the importance of oil field production to Big Oil's big five, it does present a wealth of important background information about Big Oil's designs on Iraq.
http://www.globalpolicy.org/security/oi ... iniraq.htm
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
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.
...
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 105-338), 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 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.
more ...
http://www.globalpolicy.org/security/oi ... esigns.htm
http://www.globalpolicy.org/security/oi ... ential.htm
