Global Policy Forum

Washington Fails to Realign Oil Business


By Humberto Márquez

Inter Press Service
April 22, 2004

A year on, the invasion of Iraq has turned into a fiasco for long-term U.S. goals to ensure access to steady, secure supplies of inexpensive crude oil and to start playing a decisive role in oil markets at the expense of the Organisation of Petroleum Exporting Countries (OPEC).

Pumping and transporting oil in Iraq today are risky ventures, endangering the lives of foreign oil workers. Halliburton, the U.S. construction giant that has benefited so handsomely from oil contracts in Iraq, has seen 29 employees and contractors killed. Output is still lower than on Mar. 20, 2003, when U.S. and British forces launched the invasion of Iraq, while oil prices are one-third higher.

The U.S. benchmark West Texas Intermediate closed Wednesday at just under 36 dollars a barrel, compared to last year's average price of 29 dollars, while the OPEC reference price basket stands at around 32 dollars, up from the 2003 average of 28 dollars and the 2002 average of 24 dollars. Iraq's oil output stands at just over two million barrels a day, in a world that consumes 40 times that amount, and the remaining OPEC members -- especially Saudi Arabia -- have the ability to increase short-term production to meet the market's demands.

The invasion and occupation, ''represent a fiasco, for a huge investment,'' Francisco Mieres, a Central University of Venezuela graduate school professor who specialises in the oil economy, told IPS. ''The United States hoped that a year (after the start of the war), Iraqi output would exceed three million barrels a day of crude oil that it could purchase for 15 dollars a barrel,'' he added.

Although U.S. companies have obtained ''a share of the Iraqi oil business virtually for free,'' for the United States, ''the cost of guarding Middle East oil is extremely high,'' said Mieres.

Prior to the invasion, ''the Pentagon was already spending 60 billion dollars a year maintaining its military presence in the Middle East. Although Saudi Arabia is selling crude to Washington at a discount of a dollar a barrel, military expenses drive up the actual cost of each barrel to around 200 dollars for the United States,'' he argued. The invasion has added 87 billion dollars a year to the U.S. defence budget at a time when the administration faces a public account deficit, Mieres pointed out.

The average U.S. citizen is paying for the disruption in the oil industry: petrol now costs them 1.76 dollars a gallon, 30 cents more than in March 2003, and prices are expected to continue rising before the November elections in which President George W Bush is seeking re-election. Democratic presidential hopeful John Kerry has even cracked jokes, saying gas prices are rising so high that when Bush and Vice-President Dick Cheney leave the White House in January, they will have to share a taxi.

On the oil front, ''the United States obtained a military victory but a political defeat, because all signs indicate that soon there will be neither abundant oil nor low prices -- and particularly not in Iraq,'' Ví­ctor Poleo, another professor who specialises in the economy of oil, told IPS. ''International oil prices will be dictated by scarcity. What will abound are conflicts over oil,'' said Poleo.

Nor has the purported military victory ''brought dividends for the United States in OPEC, which has not recognised the Iraqi Interim Governing Council and has given it only a voice but no vote in its meetings,'' said Mieres. OPEC is made up of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Baghdad is excluded from the group's quota system and from decisions on increasing or cutting output. ''Even Saudi Arabia ... is distancing itself from Washington,'' said Mieres. Before the OPEC meeting in March, Bush called the leaders of several Arab oil-exporting countries to urge them to boost production, but OPEC said no.

The strategy of using Iraq as a front man for the United States within OPEC has not worked. But it has brought lucrative business to U.S. companies, especially ''ones that have ties with the 'oil directorate' that is governing in Washington,'' said Poleo. The companies include Halliburton, of which Cheney was CEO before becoming vice-president; ChevronTexaco, where Bush's National Security Adviser Condoleezza Rice was formerly an executive, and Unocal, Saic and Bechtel, which also have close ties to the Republican Party.

Halliburton is emblematic, because its subsidiary Kellogg, Brown & Root (KBR) was awarded some eight billion dollars worth of contracts in Iraq, including a 1.2 billion dollar deal for repairing oil industry infrastructure in the country's south. The deals have not been without controversy. KBR has announced that it will reimburse the government 27.4 million dollars that it overcharged for supplying meals to U.S. troops. And some media have reported that KBR employees have taken bribes worth up to six million dollars.

But the biggest obstacle to the restoration of oil infrastructure has become the Iraqi resistance, which is mounting an ever-greater number of attacks on the occupation forces and on westerners in general. Companies from other nations, like Russia's Lukoil and TotalFinaElf from France, which had negotiated contracts for exploration and drilling with the Saddam Hussein regime (1979-2003), ''are still there, but just barely,'' said Mieres, a former Venezuelan ambassador to Russia.

On Apr. 12, 12 Russian oil workers were kidnapped by the Iraqi resistance, and released the next day. Moscow then recommended all Russians and Ukrainians in Iraq -- most of who are working in the oil industry -- leave the country. Lukoil, meanwhile, is once again discussing with authorities in Baghdad the question of developing the West Qurna-2 field in southern Iraq, which reportedly contains six billion barrels, or five percent of Iraq's total reserves.

But while waiting for the day when it can begin pumping oil there, Lukoil has been supplying petroleum by-products to Iraq. In March it signed a contract to sell Baghdad 180,000 tons of petrol (1.3 million barrels) and 130,000 tons of diesel quarterly -- an illustration of the poor state of Iraq's refining capacity. ''Geopolitics by force has brought a cruel paradox,'' said Poleo. ''(Vice-President) Cheney and (Defence Secretary) Rumsfeld's soldiers, who are Halliburton soldiers, are destroying Iraq, and Halliburton engineers, who are Cheney-Rumsfeld engineers, are rebuilding it.''

More Information on the Iraq Crisis
More Information on Oil in Iraq


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