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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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The major international oil companies initially rejected these terms out of hand, demanding instead complete control over production and payments of approximately $25 per barrel. This initial resistance began to erode, however, when the Chinese National Petroleum Corporation (CNPC), a government-owned operation, induced its partner, BP, the huge British oil company, to accept government terms for expanding the Rumaila field near Basra in southern Iraq to one million barrels a day.

The Chinese company, experts believed, could afford to accept such meager returns because of Beijing's desire to establish a long-term energy relationship with Iraq. This foot-in-the-door contract, China's leaders evidently hoped, would lead to yet more contracts to explore Iraq's vast, undeveloped (and possibly as yet undiscovered) oil reserves.

Perhaps threatened by the possibility that Chinese companies might accumulate the bulk of the contracts for Iraq's richest oil fields, leaving other international firms in the dust, by December a veritable stampede had begun to bid for contracts. In the end, the major winners were state-owned firms from Russia, Japan, Norway, Turkey, South Korea, Angola, and -- of course -- China. The Malaysian national company, Petronas, set a record by participating with six different partners in four of the seven new contracts the Maliki government gave out. Shell and Exxon were the only major oil companies to participate in winning bids; the others were outbid by consortia led by state-owned firms. These results suggest that national oil companies, unlike their profit-maximizing private competitors, were more willing to forego immediate windfalls in exchange for long-term access to Iraqi oil.

On paper, these contracts hold the potential to satisfy one aspect of Washington's oil hunger, while frustrating another. If fully implemented, they could collectively boost Iraqi production from 2.5 million to 8 million barrels per day in just a few years. They would not, however, deliver control over production (or the bulk of the revenues) to foreign companies, so that Iraq and OPEC could continue, if they wished, to limit production, keep prices high, and wield power on the world stage.

Nevertheless, the centers of resistance to the original U.S. oil policies have voiced opposition to these new contracts. Members of parliament immediately demanded that all contracts be submitted for their approval, which they declared would be withheld unless ironclad protections of Iraqi workers, technicians, and management were included. Iraq's own state-owned oil companies demanded guarantees that their technicians, engineers, and administrators be trained in the new technologies the foreign companies brought with them, and given escalating operational control over the fields as their skills developed.

The powerful Iraqi oil union opposed the contracts unless they included guarantees that all workers be recruited from Iraq. Local tribal leaders voiced opposition unless they guaranteed a full complement of local workers, and subcontracts for locally based businesses during the development phase. Then there were the insurgents, who continued to oppose oil exports until the U.S. fully withdraws from the country, and expressed their opposition by the 26 bombing attacks they've launched on pipelines and oil facilities since September 2009.

Some of these same groups have successfully blocked previous oil initiatives. Unless they are satisfied, they may frustrate the government's latest bid to make oil gush in Iraq. One warning sign can be seen in the fate of a contract signed with the CNPC in early 2009 that called for the development of the relatively small (one billion barrel) Ahdab oil field near the Iranian border. The language of the original contract met conditions demanded by local leaders and workers, but the work, once begun, generated few local jobs and even fewer local business opportunities. The Chinese instead brought in foreign workers, following the pattern established by U.S. companies involved in Iraqi reconstruction. Eventually, equipment was sabotaged, work undermined, and the project's viability remains threatened.

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