Global Policy Forum

By Joshua Holland

Editor's note: This is the second part of a series on the struggle for control of Iraq's oil resources and self-determination.

With 140,000 U.S. troops on the ground, the largest U.S. embassy in the world sequestered in Baghdad's fortified "Green Zone" and an economy designed by a consulting firm in McLean, Virginia, post-invasion Iraq was well on its way to being a bonanza for foreign investors. But Big Oil had their sights set on a specific arrangement -- the lucrative Production Sharing Agreements that lock in multinationals' control over energy resources for long terms and are virtually unheard of in countries as rich in easily-accessible oil as Iraq.

The occupation authorities would have to steer an ostensibly sovereign government to the outcome they desired and they'd have to overcome any resistance they encountered from the fiercely independent and understandably wary Iraqis along the way. Finally, they'd have to make sure that the Anglo-American firms were well positioned to win the lion's share of the choicest contracts.

Dealing with the most likely points of opposition began almost immediately. While the Oil Ministry, famously, was one of the few structures the invading forces protected from looters in the first days of the war, the bureaucracy's human assets weren't so lucky. With a stroke of the pen, Coalition Provisional Authority boss L. Paul Bremer fired hundreds of ministry personnel, ostensibly as part of the program of "de-Baathification." But, as Antonia Juhasz, author of The Bush Agenda, told me, "it wasn't an indication that they were a party to Saddam Hussein's crimes … they were fired because they could have stood in the way of the economic transformation." Some fraction were certainly hard-core Baathists, but they were all veterans of the country's oil sector; they knew the industry, they knew what the norms in neighboring countries were and they had no loyalty to the occupation forces. Some had to go.

That was true at the top as well. Serving as oil minister in the Iraqi Interim Government was Thamir Ghadbhan, a British-trained technocrat who at one time had been Chief of Planning under Saddam Hussein and was widely respected for his political independence and his opposition to the previous regime (Saddam had ended up imprisoning him at Abu Ghraib). Despite working closely with American advisors, Ghadbhan was replaced with Ibrahim Bahr al-Uloum, a close associate of Ahmed Chalabi, the exile favored by some war planners to run the country as a kindler and gentler -- but no doubt just as corrupt -- version of Saddam Hussein.

According to Greg Muttit, an analyst with the British oil watchdog Platform, Uloum at first seemed to be a malleable figure. He told the Financial Times that he personally favored PSAs and would give priority to U.S. oil companies, "and European companies, probably."

But Uloum would later publicly protest the elimination of fuel subsidies, a key provision of the country's economic restructuring, saying, "This decision will not serve the benefit of the government and the people. This decision brings an extra burden on the shoulders of citizens." He was, as the Associated Press reported, given "a forced vacation." In the end it would turn out to be a permanent one; Chalabi, who was Deputy Prime Minister at the time, took over the job himself (supposedly as "acting" Minister for 30 days, but his term would last a year). Chalabi had no previous experience in the oil biz, but was a reliable, pro-Western figure with little in the way of nationalist zeal to get in the way of being a good lap-dog. As leader of the Iraqi National Congress, he had said he favored the creation of a U.S.-led consortium to develop Iraq's oil fields. "American companies will have a big shot at Iraqi oil," Chalabi told the Washington Post in 2002.

According to Alexander Cockburn, Chalabi also orchestrated the ouster of Mohammed Jibouri, executive director of the state's oil marketing agency, who had offended the Swiss giant Glencore by telling its executives that they couldn't trade Iraqi oil after their extensive dealings with Saddam Hussein.

An emerging, although still fragile, civil society was another source of potential trouble. Iraqi trade unions were a thorn in the side of the CPA -- shutting down the port of Khor az-Zubayr in protest of a rip-off deal with the Danish shipping giant Maersk, halting oil production in the South to demand the re-hire of laid-off Iraqi workers and kicking Halliburton subsidiary Kellogg Brown and Root out of their refineries.

Perhaps it's not a coincidence, then, that the only significant law that Paul Bremer left on the books from the Hussein era was a prohibition against organizing public-sector workers; Raed Jarrar, an Iraqi analyst with the NGO Global Exchange told me "the unions are basically illegal -- they're having a lot of legal problems."

Of course, none of that guaranteed that the Iraqis would stay on the preferred path, especially after the election of an ostensibly sovereign government.

That's where the most common -- almost ubiquitous -- tool of neocolonialism, debt, came into play. In this case, massive, crushing debt run up by a dictator who treated himself and his cronies to palaces and imported luxuries, spent lavishly on weapons for Iraq's war with Iran -- fought in part on behalf of the U.S. -- and owed billions of dollars in reparations for invading Kuwait in 1990.

To put Iraq's foreign debt in perspective, if the country's economy were the size of the United States', then its obligations in 2004, proportionally, would have equaled around $55 trillion dollars, according to IMF figures (and that doesn't include reparations from the first Gulf War).

Clearly, that amount of debt was unsustainable, and the Bush administration launched a full-court press to get creditor nations to forgive at least part of the new government's debt burden. Former Secretary of State James Baker, long the Bush family's "fixer," was dispatched on a tour of the world's capitals to cut deals on behalf of the Iraqis.

The administration adopted the language of debt relief activists to frame their pitch, surprising many in the NGO community. Bush, and Baker, called it "odious" debt that had financed the whims of a brutal dictator and was used contrary to the interests of the Iraqi population. Under international law, "odious" debt, in theory at least, doesn't need to be forgiven; it's written off as a dictator's illicit gains. As one might expect, wealthy creditor nations have long resisted the concept.

Debt relief activists Basav Sen and Hope Chu wrote that the move "seemed inexplicable at first." But it soon became clear that Iraq's debt relief program was, in fact, a way of locking in Iraq's radical new economy. The largest chunk of debt, $120 billion, was owed to the Paris Club, a group of 19 industrialized nations. Baker negotiated a deal whereby the Paris Club would forgive 80 percent of Iraq's debt, but the catch -- and it was a big one -- was that Iraq had to agree to an economic "reform" package administered by the International Monetary Fund, an institution dominated by the wealthiest countries and infamous across the developing world for its painful and unpopular Structural Adjustment Programs.

The debt would be written off in stages; 30 percent would be cancelled outright, another 30 percent when an elected Iraqi government accepted an IMF structural reform agreement and a final 20 percent after the IMF had monitored its implementation for three years. This made the IMF a powerful watchdog over the country's new economy, despite the fact that the institution's own share of the country's outstanding debt was less than 1 percent of the total.

Among a number of provisions in the IMF agreement, along with privatizing state-run companies (which resulted in the lay-offs of an estimated 145,000 Iraqis), slashing government pensions and phasing out the subsidies on food and fuel that many Iraqis depended on, was a commitment to develop Iraq's oil in partnership with the private sector. Then-Finance Minister Adel Abdul Mehdi said, none too happily, that the deal would be "very promising to the American investors and to American enterprise, certainly to oil companies." The Iraqi National Assembly released a statement saying, "the Paris Club has no right to make decisions and impose IMF conditions on Iraq," and called it "a new crime committed by the creditors who financed Saddam's oppression." And Zaid Al-Ali, an international lawyer who works with the NGO Jubilee Iraq, said it was "a perfect illustration of how the industrialized world has used debt as a tool to force developing nations to surrender sovereignty over their economies."

The IMF agreement was announced in December of 2005, along with a new $685 million dollar IMF loan that was to be used, in part, to increase Iraq's oil output. The announcement came a month after Iraqis went to the polls to vote for their first government under the new Constitution. The timing, according to the Washington Post, was meant to spare Iraqi "politicians from voters' wrath." That was a wise idea; immediately following the agreement's signing gas prices skyrocketed and Iraqis rioted.

The icing on the cake is that the deal James Baker negotiated with the Paris Club refers to Iraq as an "exceptional situation"; no precedent was set that would allow other highly indebted countries saddled with odious debt from their own past dictators to claim similar relief.

The December deadline the Iraqi government is expected to meet for the completion of its final Oil Law is a "benchmark" in the IMF agreement.

In an investigation for The Nation, Naomi Klein discovered that Baker had pursued his mission with an eye-popping conflict of interest. Klein learned that a consortium that included the Carlyle Group, of which Baker is believed to have a $180 million stake, had contracted with Kuwait to make sure that it was paid the money it was owed by Iraq. When Baker met with the Kuwaiti Emir to beg forgiveness for Iraq's odious debt, he had a direct interest in making sure he didn't get it.

Another major creditor was Saudi Arabia. The Carlyle Group has extensive business dealings with the kingdom, and Baker's law firm, Baker Botts, was representing the monarchy in a suit brought by the families of the victims of 9/11.

The most recent IMF report (PDF) shows how successfully he failed: "While most Paris Club official creditors have now signed bilateral agreements, progress has been slow in resolving non-Paris Club official claims, especially those of Gulf countries," it says. It's likely that Iraq, a country occupied for over three years, devastated by 12 years of sanctions and with a per capita GDP of $3,400, will end up paying reparations to Kuwait, a prosperous state with a per capita GDP of over $19,000, for the five months Saddam occupied his neighbor in late 1990 and early 1991.

Iraq will still face a mountain of debt even if it meets all the "benchmarks" required of it -- the IMF expects the country's debt service to equal five percent of its economic output in 2011 and warns that even a minor price shock in the oil market "would require significant borrowing from the international markets to close the financing gaps."

"Sovereign" debt is transferable between governments; if a new strong-man arises or Iraq becomes a loose federation, the debt will remain on the books and defaulting on it, while a possibility, has serious long-term consequences.

All of this is about bringing different forms of pressure onto Iraq's nascent government, not controlling it, and that's an important distinction. A neocolonial power respects a country's sovereign laws, as long as it has significant input in writing them. Before and since the "handover" to Iraq's government, the Green Zone has been over-run with "advisors" from Big Oil. Aram Roston wrote: "it's clear that there is not just the one Iraqi Oil Ministry but a parallel 'shadow' ministry run by American advisers."

Immediately after the invasion, Phillip Carroll, a former Chief Executive with Royal Dutch-Shell, and a 15-member "board of advisors" were appointed to oversee Iraq's oil industry during the transition period. According to the Guardian , the group's chief executive "would represent Iraq at meetings of Opec." Carroll had been working with the Pentagon for months before the invasion -- even while the administration was still insisting that it sought a peaceful resolution to the Iraq crisis -- "developing contingency plans for Iraq's oil sector in the event of war." According to the Houston Chronicle, "He assumed his work was completed, he said, until Defense Secretary Donald Rumsfeld called him shortly after the U.S.-led invasion began and offered him the oil adviser's job." Carroll, in addition to running Shell Oil in the U.S., was a former CEO of the Fluor Corporation, a well-connected oil services firm with extensive projects in Saudi Arabia and Kuwait and at least $1.6 billion in contracts for Iraq's reconstruction. He was joined by Gary Vogler, a former executive with ExxonMobile, in Iraq's Office of Reconstruction and Humanitarian Assistance.

After spending six months in the post, Carroll was replaced by Robert McKee, a former ConocoPhillips executive. According to the Houston Chronicle, "His selection as the Bush administration's energy czar in Iraq" drew fire from Congressional Democrats "because of his ties to the prime contractor in the Iraqi oil fields, Houston-based Halliburton Co. He's the chairman of a venture partitioned by the … firm."

The administration selected ChevronTexaco Vice President Norm Szydlowski to serve as a liaison between the Coalition Provisional Authority and the Iraqi Oil Ministry. Now the CEO of the appropriately named Colonial Pipeline company, he continues to work with the Iraq Energy Roundtable, a project of the U.S. Trade and Development Agency that recently sponsored a meeting to "bring together oil and gas sector leaders in the US with key decision makers from the Iraq Ministry of Oil." Terry Adams and Bob Morgan of BP, and Mike Stinson of ConocoPhillips would also serve as advisors during the transition.

After the CPA handed over the reigns to Iraq's interim government, the embassy's "shadow" oil ministry continued to work closely with the Iraqis to shape future oil policy. Platform's Greg Muttit U.S. military and civilian" personnel, and that he would be shocked if "multiple millions of dollars in bribes" were not changing hands. The IMF noted in its latest report (PDF) that "corruption related to the production and distribution of refined fuel products was rampant." Last March, 450 Oil Ministry Employees were fired for suspected corruption, and Mohammed al-Abudi, the Oil Ministry's Director General for Drilling, said that "administrative corruption" was pervasive. "The robberies and thefts are taking place on a daily basis on all levels", he said, "committed by low-level government employees and by high officials in leadership positions of the Iraqi state." The same day that the UN legitimized the occupation, George Bush signed Executive Order 13303 providing full legal immunity to all U.S. oil companies doing business in Iraq in order to facilitate the country's "orderly reconstruction."

Yet, despite a five-year effort, Big Oil still sits on the sidelines, wary of the disorder and violence that's plagued the country. Ironically, it appears that China may well receive the first deal in post-Saddam Iraq (although it's one negotiated with Hussein's government before the war). The Kurdish autonomous region has signed three PSAs -- none with the majors -- although there is some dispute about their validity (and, at this writing, there are reports that the Kurds are in negotiations with Royal Dutch-Shell and BP, among others).

At this point, the situation is very fluid. Last week, Iraqis were shocked when a controversial measure that might lead to the country's effective break-up was passed in the Parliament by one vote. The major Sunni parties and Muqtada al Sadr's ministers boycotted the session in outrage. Muddying the waters further is a heated debate about whether a somewhat ambiguous provision in the Iraqi constitution already gives provincial governments the right to hold onto oil revenues rather than send them to the central government. The results of all of these debates will have an enormous impact on Iraq's chances to build an autonomous and potentially prosperous country down the road.

It's possible that the administration and its partners, expecting to be greeted with open arms by the Iraqi people, badly overplayed their hand. Iraq's new government is faced with what may prove to be an insurmountable crisis of legitimacy based largely on the fact that it's seen as collaborating with American forces. Overwhelming majorities of Iraqis of every sect believe the U.S. is an occupier, not a liberator, and are convinced that it intends to stay in Iraq permanently. Raed Jarrar put it this way: "If, today, you were to go in front of Parliament and ask: 'who is opposed to demanding a timetable for the Americans to withdrawal?' nobody would dare raise their hand. The debate is about how soon you set it." The passage of a sweetheart oil law that puts long-term control of the country's oil wealth in the hands of Western firms would validate Iraqis' fears of a permanent U.S. presence and could prove to be a tipping point. It's also possible Iraq's government won't make it to December; at this writing, rumors of a "palace coup" are swirling around Baghdad, according to Iraqi lawmakers.

What is clear is that the future of Iraq ultimately hinges to a great degree on the outcome of a complex game of chess -- only part of which is out in the open -- that's playing out right now, and oil is at the center of it. It's equally clear that there's a yawning disconnect between Iraqis' and Americans' views of the situation.

Erik Leaver, a senior analyst at the Institute for Policy Studies in Washington, told me that wrangling over the distribution of Iraq's oil wealth is "definitely causing problems on the ground" but the entire topic is taboo in polite DC circles. "Nobody in Washington wants to talk about it," he said. "They don't want to sound like freaks talking about blood for oil." At the same time, a recent poll asked Iraqis what they believed was the main reason for the invasion and 76% gave "to control Iraqi oil" as their first choice.