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Whatever Happened to the Neocons’ Grand Schemes to Control Iraq’s Oil?

Dick Cheney thought the US occupation would see a quadrupling of Iraq's capacity to pump oil, and a privatization of its production. Not quite.

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In 2007, under direct U.S. pressure, virtually the same law was reluctantly endorsed by Prime Minister Maliki and forwarded to the Iraqi parliament for legislative consideration. Instead of passing it, the parliament established itself as a new center of resistance to the U.S. plan, raising myriad familiar complaints and repeatedly refusing to bring it to a vote. It lies dormant to this day.

This stalemate continued unabated through the Obama administration's first year in office, as illustrated by a continuing conflict around the pipeline that carries oil from Iraq to Turkey, a source of about 20% of the country's oil revenues. During the Bremer administration, the U.S. had ended the Saddam-era tradition of allowing local tribes to siphon off a proportion of the oil passing through their territory. The insurgents, viewing this as an act of American theft, undertook systematic sabotage of the pipeline, and -- despite ferocious U.S. military offensives -- it remained closed for all but a few days throughout the next five years.

The pipeline was re-opened in the fall of 2009, when the Iraqi government restored the Saddam-era custom in exchange for an end to sabotage. This has been only partially successful. Shipments have been interrupted by further pipeline attacks, evidently mounted by insurgents who believe oil revenues are illegitimately funding the continuing U.S. occupation. The fragility of the pipeline's service, even today, is one small sign of ongoing resistance that could be an obstacle to any significant increase in oil production until the U.S. military presence is ended.

The entire six-year saga of American energy dreams, policies, and pressures in Iraq has so far yielded little -- no significant increase in Iraq's oil production, no increase in its future capacity to produce, and no increase in its energy exports. The grand ambition of transferring actual control of the oil industry into the hands of the international oil companies has proven no less stillborn.

Over the years since the U.S. began its energy campaign, production has actually languished, sometimes falling as much as 40% below the pre-invasion levels of an industry already held together by duct tape and ingenuity. In the Brookings Institution's latest figures for December 2009, production stood at 2.4 million barrels per day, a full 100,000 barrels lower than the pre-war daily average.

To make matters worse, the price of oil, which had hit historic peaks in early 2008, began to decline. By 2009, with the global economy in tatters, oil prices sank radically and the Iraqi government lacked the revenues to sustain its existing expenditures, let alone find money to repair its devastated infrastructure.

As a result, in early 2009, Maliki's government began actively, even desperately, seeking ways to hike oil production, even without an oil law in place. That, after all, was the only possible path for an otherwise indigent country with failing agriculture in the midst of a drought of extreme severity to increase the money available for public projects -- or, of course, even more private corruption.

The Oil Companies Make Their Move

In January 2009, the government opened a new chapter in the history of oil production in Iraq when it announced its intention to allow a roster of several dozen international oil firms to bid on development contracts for eight existing oil fields.

The proposed contracts did not, in fact, offer them the kind of control over development and production that the Cheney task force had envisioned back in 2001. Instead, they would be hired to finance, plan, and implement a vast expansion of the country's production capacity. After repaying their initial investment, the government would reward them at a rate of no more than two dollars for every additional barrel of oil extracted from the fields they worked on. With oil prices expected to remain above $70 a barrel, this meant, once initial costs were repaid, the Iraqi government could expect to take in more than $60 per barrel, which promised a resolution to the country's ongoing financial crisis.

 
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