Sunday, March 20, 2005

Running a War Like a Business 

The April Harper's is on the stands (though not, alas, on the web), and Greg Palast's article "OPEC on the March: Why Iraq Still Sells Its Oil a la Cartel" is full of fascinating details omitted from his much-shorter BBC report last week. In that report, you will recall, Palast documented a pre-war plan endorsed by leading neoconservatives -- including Rumsfeld, Wolfowitz, Elliott Abrams, and Grover Norquist -- to smash OPEC by seizing, and then privatizing, Iraq's oil fields:
[Ariel] Cohen recently explained to me how such an extraordinary geopolitical feat might be accomplished. OPEC maintains high oil prices by suppressing production through a quota system effectively imposed on each member by Saudi Arabia, which reigns by dint of its overwhelming reserves. The Saudis, to maintain their control on pricing, must keep a lid on production from other members -- particularly Iraq, which has the second largest proven reserves.

Under Saddam Hussein, Iraq adhered to the OPEC quota limit (historically set to equal Iran's, now 3.96 million barrels a day) via state ownership of all fields. Cohen reasoned that if Iraq's fields were broken up and sold off, a dozen competing operators would quickly crank up production from their individual patches to the maximum possible, swiftly raising Iraq's total output to 6 million barrels a day. This extra crude would flood world petroleum markets, OPEC would devolve into mass cheating and overproduction, oil prices would fall over a cliff, and Saudi Arabia -- both economically and politically -- would fall to its knees . . . .

In plotting the destruction of OPEC, the neocons failed to predict the virulent resistence of insurgent forces: the U.S. oil industry itself . . . . The [industry] working group's ideas about the war had been far less starry-eyed that those of the neocons. "The petroleum industry, the chemical industry, the banking industry -- they'd hoped that Iraq would go for a revolution like in the past and government was shut down for two or three days," [industry adviser Falah] Aljibury told me. "You have a martial law . . . and say Iraq is being liberated and everybody stay where they are . . . Everything as is." On this plan, Hussein would simply have been replaced by some former Baathist general . . . .

With pipelines exploding daily, the fantasy of remaking Iraq's oil industry also went up in flames. Carroll was replaced by another Houston oil chieftain, Rob McKee, a former executive vice president of ConocoPhillips and currently the chairman -- even during his tenure in Baghdad -- of Enventure, an oil-drilling supply subsidiary of the Halliburton Corporation. McKee had little tolerance for the neocons' threat to privatize the oil fields . . . . Iraqis, says [McKee associate Ed] Morse, know that if they pump 6 million barrels a day, i.e., two million above their expected OPEC quota, "they will crash the oil market" and bring down their own economy.

In November 2003, McKee quietly ordered up a new plan for Iraq's oil . . . . For months, the State Department officially denied the existence of this 323-page plan for Iraq's oil, but when I identified the document's title from my sources and threatened legal action, I was able to obtain the complete report, dated December 2003 and entitled Options for Developing a Long Term Sustainable Iraqi Oil Industry. The multi-volume document describes seven possible models of oil production for Iraq, each one merely a different flavor of a single option: the creation of a state-owned oil company. The seven options ranged from the Saudi Aramco model, in which the government owns the whole operation from reserves to pipelines, to the Azerbaijan model, in which the state-owned assets are operated almost entirely by "IOC's" (International Oil Companies) . . . .

Given how easily the interests of OPEC and those of the IOC's can be aligned, it is certainly understandable why smashing the oil cartel would not strike oilmen as a good idea. In 2004, with oil approaching the $50-a-barrel mark all year, the major U.S. oil companies posted record or near-record profits. ConocoPhillips, Rob McKee's company, this February reported a doubling of its quarterly profits from the previous year, which itself had been a company record; Carroll's former employer, Shell, posted a record-breaking $4.48 bil lion in fourth-quarter earnings. ExxonMobil last year reported the largest one-year operating profit of any corporation in U.S. history.

When I talked to Ariel Cohen at Heritage, his dream of smashing OPEC in shambles, he blamed the State Department for acquiescing to the Saudis and to Russia, which also benefits from selling oil at high OPEC prices. The poisonous policies were influenced, he said, by "Arab economists hired by the State Department who are basically supporting the witches' brew of the Saudi royal family and the Soviet ostblock... because the Saudis are interested in maximizing their market share and they're not interested in fast growth of the Iraqi output."

According to Morse, the switch to an OPEC-friendly policy for Iraq was driven by Dick Cheney himself. "The person who is most influential in running American energy policy is the Vice President," who, says Morse, "thinks that security begins by ... letting prices follow wherever they may." Even, I asked, if those are artificially high prices, set by OPEC? "The VP's office [has] not pursued a policy in Iraq that would lead to a rapid opening of the Iraqi energy sector... so they have not done anything, either with producers or energy policy, that would put us on a track to say, 'We're going to put a squeeze on OPEC.'"

Today, the old interim oil minister, Uloum, has been replaced by the very men he removed: Muhammad al-Jiburi, now minister of trade, and Thamer Ghadhban, now oil minister. And Dick Cheney, far from "putting the squeeze on OPEC," has taken a de facto seat there, allowing the cartel to maintain its own, suffocating grip on the U.S. economy.

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