U.S. Attempt to Control Iraq's Oil and Economy Continues Behind the Scenes

By Maya Schenwar, TruthOut.org. Posted April 7, 2008.

As violence rises again in Iraq, negotiations to institutionalize US economic dominance continue unabated.

While the battle of Basra raged last week, a series of talks between the Bush administration and the US-backed Maliki government rolled forward. These negotiations may have at least as many implications for Iraq's future as the violence on the ground.

The discussions, ongoing since November, stem from a "Declaration of Principles" agreement signed by the two leaders, aimed at establishing a long-term "friendship" between their countries.

While the portion of the Declaration that suggests a permanent US military presence in Iraq has garnered much attention, the agreement also proposes another goal: to solidify "economic ties" between the two countries and grant the US preferential treatment in trading with Iraq.

As brought to light by last week's oil price surge during the assault on Basra, economic concerns are inextricably linked to the occupation. When it comes to oil, the coming months may be crucial in determining what kind of "friends" the US and Iraq are going to be over the long haul.

A Framework for Occupation

In a House Foreign Affairs Committee hearing last month, State Department Iraq Coordinator David Satterfield revealed the Declaration of Principles proposals have now been divided into a binding Status of Forces Agreement (on military involvement) and a nonbinding Strategic Framework Agreement (on economic and diplomatic relations). Neither would be submitted for the consent of Congress. Though Satterfield emphasized that, being nonbinding, the Strategic Framework would not "tie the hands" of future administrations, it could solidify changes the US has already made to Iraq's economic landscape - and pave the way for increased US control over Iraq's oil in years to come, according to Antonia Juhasz, a fellow at Oil Change International.

"A lot of frameworks for foreign investment were set up under [former Director of Iraq Reconstruction L. Paul] Bremer, and are already in place," Juhasz told Truthout. "A bilateral agreement would lock all that in and also place pressure on the government to pass the domestic oil law, to settle access for foreign companies to Iraq's oil underground."

The "all that" encompasses a host of sweeping reforms: Thanks to Bremer's alterations of Iraqi law during the first year of the US occupation, American companies are now allowed to buy out 100 percent of Iraqi businesses, instead of partnering with them. Bremer's orders also eliminated Iraq's high taxes on corporations, exchanging them for a 15 percent "flat tax." They abolished the practice of giving preference to Iraqi companies - in contracting out reconstruction work, for example - and erased a requirement to hire Iraqi workers.

Previously, Iraqi banks were closed to foreign ownership. Now, not only can foreign banks operate in Iraq, they can take over private Iraqi banks as well.

Bremer reworked Iraq's trademark and copyright laws, eliminated trade barriers and afforded foreign businesses the option of circumventing Iraq's legal system and taking any disputes to international tribunals.

A bilateral agreement like the Strategic Framework could serve as the perfect next step for the administration, making Bremer's "emergency" economic changes look like standard policy, according to Juhasz. Even if it remains a nonbinding pact, it would exert significant pressure on the Iraqi government to leave Bremer's legacy alone.

Where the Oil Flows

The November version of the Bush-Maliki agreement suggested a commitment to "facilitating and encouraging the flow of foreign investments to Iraq, especially American investments, to contribute to the reconstruction and rebuilding of Iraq."

According to James A. Paul, executive director of the Global Policy Forum, the "flow of foreign investments to Iraq" wouldn't manifest as generously as it sounds: The deal would primarily translate into "US/UK oil company control."

Last week's assault on Basra was "part of an effort to defeat the 'nationalists' in Iraq and consolidate a pro-US political regime that will go ahead with the oil deals," Paul told Truthout. Just before fighting erupted in Basra, the Iraqi presidential council approved the "provincial law," which clears the way for elections - potentially allowing nationalist leaders who oppose US oil interests to come to power. Maliki's Basra attack, says Paul, represents a failed attempt to quash that possibility.

It's not a question of pressure from oil companies, according to Reese Erlich, co-author of "Target Iraq: What the News Media Didn't Tell You." Buying up oil reserves is a strategic move to ensure US energy "security." The corporations become the vehicles for that security.

"It's not like oil companies were pounding on the state house door to invade Iraq," Erlich told Truthout. "Oil companies certainly benefit, but they're not the initiators."

As Juhasz noted, one goal Bremer could not singlehandedly accomplish was the privatization of Iraq's reserves, which, by some estimates, may contain a quarter of the world's oil. The famed "Iraqi oil law," approved by the Maliki administration but still "stuck" in the Parliament, would, among other provisions, open up Iraq's underground oil for foreign investment. In its most recent draft, the law would leave only 12 of the country's oil reserves under government control, with the remaining 74 -- not to mention any undiscovered fields, which certainly exist -- up for grabs.

The primary grabbers would no doubt be American, as indicated by the Declaration of Principles' "especially American investments" clause.

Since the early days of the occupation, the US has never kept its oil execs far from Iraq's oil. The oil fields, as well as the Oil Ministry in Baghdad, were some of the only places American soldiers guarded throughout the initial invasion. Paul notes that US "advisers" presided over the drafting of the latest version of the oil law.

Skirting the Law

According to the pan-Arab newspaper Al-Hayat, simultaneous with the battle of Basra, negotiations were taking place between major oil companies and the Iraqi ministry of oil.

An Oil Ministry official told The Associated Press last week Chevron, Exxon and British Petroleum would soon submit proposals for contracts on specific oil fields - including the Rumaila field near Basra.

Since the oil law has not yet passed, private companies can't obtain long-term contracts on the fields. However, that hasn't stopped them from getting their feet in the door. All it takes is a few powerful, cooperative Iraqis, and, according to Erlich, some of the most prominent are Kurds, who control Iraq's historically highest-producing oil field, near Kirkuk. Disregarding the Parliament's objections, Kurdistan has signed numerous "production sharing agreements" with Western oil companies.

The Maliki administration has also done its share of dodging Parliament's prohibition on international oil investment. Long-term contracts may be off limits, but short-term contracts stop just short of illegal, and Iraq's executive branch is swooping in on that loophole.

"You have the oil minister trying to sign two-year contracts with the oil companies, to demonstrate that the Maliki government is working with oil companies, even if Parliament is not," Juhasz said.

Pushing Back

Parliament is holding its ground. For the past year, the body has systematically rejected drafts of the oil law, which, in any form, would divest the legislature of authority on oil. The 12 fields still controlled by the government would be in the hands of an advisory board, including members of the Maliki administration, representatives of the provinces - and even, probably, representatives of foreign oil companies, according to Juhasz. Paul points to Parliament's seeming inaction as a genuine act of resistance to the occupation.

"The Parliament has remained steadfastly opposed and, in spite of periodic predictions that parliamentary agreement is 'near,' they have not acted," he said. "There have even been rumors that the companies have offered $5 million to each parliamentarian who votes 'yes,' a rumor that seems to me to be probably based in reality, yet even with such blandishments the Parliament has not acted."

By democratic standards, Parliament has some important backers on its side. A July poll commissioned by a group of human rights organizations showed 63 percent of the Iraqi people would prefer Iraqi companies maintain control of the country's oil.

Neither Democratic presidential hopeful has explicitly spoken out against opening Iraq up to foreign oil investments. Both Barack Obama and Hillary Clinton have emphasized the need to urge the Iraqi government to pass one prong of the oil law -- a provision to distribute oil revenue evenly throughout the country, over which there is little controversy -- but have largely bypassed the broader debate about the law.

Meanwhile, negotiations over the Strategic Framework continue, with the looming prospect of an agreement threatening to further entrench Bush-era economic policies in Iraq.

"I hope things would change under a Democratic administration," Juhasz said. "But the fact that neither Clinton nor Obama has put forward an immediate withdrawal plan is worrisome. It doesn't give me confidence that they would abandon the oil policies the Bush administration has pursued."

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Maya Schenwar is a Chicago-based freelance writer and an editor for Publications International.

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