After the nationalizations that swept the oil producing countries, beginning with Iraq’s nationalization in 1972, the oil multinationals lost much of their role in production, known in the oil business as “upstream.” Forced to abandon the cornucopia of profits in the Middle East (and to buy Middle East oil on the world market), they developed alternative production in such areas as the North Sea and the West Coast of Africa where production costs were higher and profits lower. They had to shift much of their profit-making to “downstream” activities such as transportation (tankers and pipelines), refining, petrochemicals and retailing. Major national oil companies (such as Kuwait and Venezuela) pursued downstream strategies as well, however, leading to overcapacity and falling rates of return.

By the mid-1990s, the companies began to revise their strategy towards a return to upstream, crude-oil production, pressing oil producing governments to offer production-related arrangements that could give the multinationals a direct share in crude reserves. Such ideas proved controversial and contrary to nationalist public sentiment in the producing countries.

By the end of the 1990s, however, oil-producing governments were mired in political crises, due to corruption, wars, and civil unrest. In Venezuela, Iraq, Algeria, Iran, and other producer countries, the US government appeared to be involved in destabilization measures, deepening existing social instability and what some scholars call “the crisis of the rentier state." Facing domestic unrest and oil production problems, the nationalized companies confront the need for large new investments to preserve production in older fields and to prospect for new reserves. But corrupt and instable governments want to take all the oil revenue stream, leaving little left over for investments. The multinationals argue that their enormous finances, greater technical competence and lower production costs could benefit producer governments, but behind these technocratic arguments lies the threat of further foreign destabilization and even direct military intervention. Clearly, the companies hope to roll the clock back to the “good old days” when they ruled the oil business and gave producer governments only a very small share.

Effects of US-Dominated Iraq on Other Oil Producer Governments

A U.S. client government in Baghdad – or a U.S. military occupation government – would doubtless hand out upstream production concessions to US-UK companies that would set an important precedent in the world oil industry, tipping the balance of power in favor of the companies and away from the producer states. In this way, the war against Iraq would have an effect on the oil industry that would go far beyond the borders of Iraq.

Oil analysts believe that a US-controlled Iraqi government would quickly make deals with the companies for privatized production. Such deals, though possibly agreed-to in advance of the war, would be justified by the new government on the basis that only the companies would be able to quickly resume post-war production, in order to resume exports and buy critical food, medicines, and other humanitarian goods. Further, Iraq’s huge needs to rebuild its post-war infrastructure would lead towards high production.

Even before Iraq had reached its full production potential of 8 million barrels or more per day, the companies would gain huge leverage over the international oil system. OPEC would be weakened by the withdrawal of one of its key producers from the OPEC quota system. Indeed, OPEC might face the paradox that a US military government of occupation in Iraq would be an OPEC member! Alternatively, such a government might pull out of the producers’ cartel.

This would put pressure on all major oil producers like Kuwait, Iran, Saudi Arabia and Venezuela to de-nationalize their oil companies and offer US-UK companies new concessions or production-sharing agreements that could lead to far higher company profits in these areas. Iran has already made some deals based on a 50/50 split and Saudi Arabia has returned to production sharing in its emerging gas business. US military presence in the Gulf and US clandestine operations to overthrow nationalist governments such as Chavez in Venzuela would increase the pressure. Privatization, even if incomplete, could yield additional tens of billions of profits to the oil companies and would weaken and even destabilize the major oil-producing states. Oil prices might be lowered temporarily to achieve this purpose, then raised later on when a new company-friendly order had been established.

Competition among the Multinational Oil Companies

Five companies dominate the international oil industry, four of them based in the US and the UK. The largest, US-based Exxon Mobil, was the world’s most profitable company in 2001 ($15 billion in profits) and the largest industrial company in terms of revenue. The three other companies in order of size are: BP Amoco (UK), Royal Dutch Shell (UK), and Chevron Texaco (US). France’s TotalElfFina ranks in fifth place. Predecessors of these firms controlled nearly all of the Iraq Petroleum Company from the discovery of oil in the late 1920s until nationalization in 1972. The British firms held half of the company, reflecting the dominant colonial position of the UK at that time in the region.

After nationalization, the Iraqis sought to gain greater control of their oil resources. They shunned the UK and US companies, while developing working relationships with French companies and the (Soviet) Russian government.. Just before the Gulf War (1990-91), Japanese companies negotiated for production-sharing contracts in Iraq and were said to have concluded a deal for the Majnoun field, but that deal collapsed due to the US-led war and the subsequent sanctions. During the 1990s, various firms negotiated with the Iraqis in hopes of gaining access to Iraqi oil once the sanctions were lifted. Shell, and possibly other US-UK companies held secret talks that did not succeed. In 1997 TotalFinaElf, China National Oil Company, and Lukoil of Russia signed agreements with the Iraqis for deals worth hundreds of billions of dollars. Lukoil’s deal concerned development of the West Qurna field, while TotalFinaElf obtained rights to Majnoun and China Nations to North Rumailah (the latter is the huge field that lies astride the border with Kuwait). A number of smaller companies, mostly Russian but also from Malaysia and other countries, got contracts at about this time.

The US-UK companies, keen to regain their former dominance in Iraq, fear that they would lose their leading role in the world oil industry if these contracts with their competitors come to fruition. France and Russia pose the biggest threat, but serious competitors from China, Germany, Italy and Japan also are players in this sweepstakes. China is especially keen to gain a stake in the region’s oil reserves because its rapid economic growth is pushing up its oil consumption. Chinese economists estimate that China may have to import as much as 5.5 million barrels a day from the Gulf by 2020.

The US-UK companies strongly favored the sanctions, as a means to hold their competitors at bay (and hold down excess production on the world market), but weakening sanctions in the late 1990s threatened their future prosperity. The companies are nervous but enthusiastic about Washington’s war option, for it seems to be the only means left to oust their rivals and establish a dominant presence in the fabulously profitable future of Iraq oil production.

It appears that the Washington has used its post-war control over Iraqi oil to win over opposition in the UN Security Council. Discussions over access to future oil production in Iraq have apparently been going on between Washington, London, Moscow, Paris and Beijing and also between the companies directly. Many news stories have suggested that these parleys have taken place and statements by government leaders have underscored the importance of the oil issue.

"We will review all these agreements, definitely," said Faisal Qaragholi to a Washington Post reporter in September. Quaragholi is a petroleum engineer who directs the London office of the Iraqi National Congress (INC), an umbrella organization of opposition groups that is backed by the United States. "Our oil policies should be decided by a government in Iraq elected by the people."

Ahmed Chalabi, the INC leader, went even further, saying he favored the creation of a U.S.-led consortium to develop Iraq's oil fields, which have deteriorated under more than a decade of sanctions. "American companies will have a big shot at Iraqi oil," Chalabi said. Such statements have deepened the fears of the non-US-UK companies and pressured them to go along with the US war plans in order to get a share of the post-war concessions.

Business news agency Reuters, in a story datelined December 15, 2002, put the matter bluntly when it wrote “Iraq's crude reserves, the world's second largest after Saudi Arabia, are at the center of a tug-of-war between countries hoping to grab a share of Baghdad's oil wealth once United Nations sanctions are lifted.”

Michael Ruppert concentrates on the impact the Iraq war looks to have on Russia's oil interests and its economy. 

The Unseen Conflict

by Michael C. Ruppert

fromthewilderness.com

 

http://www.fromthewilderness.com/free/ww3/101802_the_unseen.html

The stakes are incredibly high for Russia. Major press organizations are now acknowledging what FTW has been saying for months. The Bush objective is to drive the price of oil down and simultaneously drive a stake through OPEC, forestalling a further and perhaps catastrophic crash in the U.S. economy. News analyses from Pravda to Fox News have foreseen that a successful U.S. invasion will result in crude oil prices of between $12 and $16 per barrel. Oil currently consts $30 per barrel.

That would destroy Russia's economic recovery as it sells hand over fist its own diminishing reserves -- oil that is more expensive to produce and of a lesser quality than Mideast crude, while prices are at $30. Iraq owes Russia $7 billion in debt from the Soviet era.

And on Aug. 19, Russia and Iraq signed a $40 billion infrastructure development deal, which, as reported in the Tehran Times, saw a team of Russian engineers on their way to what may soon be targets of U.S. bombing raids.

Both Russia and France have development interests in major Iraqi oil fields. The Reuters story reported, "Although [France's] TotalFinaElf has no contract, it has been earmarked by Saddam's government to develop the Majnoon and Bin Umar fields with reserves totaling 26 billion barrels. [Russia's] Lukoil has signed a contract for the 15 billion-barrel West Qurna field."

The back room deals and implied threats are getting hot and heavy. On Sept. 5, the Asia Times reported that Russia was considering an expensive trans-Siberian pipeline to service China. This would compete with post-9-11 pipeline deals that have been negotiated to send Caspian and Central Asian oil through Afghanistan for the Chinese market under U.S. control.

As FTW noted last month, the World Bank has opened offices in Kabul to facilitate the financing of the U.S.-backed projects. Russia's move may not be much of a threat because Russian oil is inferior to Caspian oil. Also, Russia has long passed its peak of production, which means that as time passes it will be increasingly expensive to produce. The message is clear, however, and a coalition of nations opposed to U.S. Imperial behavior could pull it off.

In the meantime Stratfor, a geopolitical analysis firm, reported that the U.S. is quietly offering a quid pro quo to Russia in the form of a trade off. If Russia will sanction the U.S. invasion, the U.S. will allow Russia a free hand in Georgia to deal with Chechen and Islamic rebels and presumably a piece of the profits from the new Baku-Tbilisi-Ceyhan pipeline project that just broke ground. It seems like a very little quid for a lot of pro quo.

Dale Pfeiffer writes that the stakes in Iraq are higher for both the US and Russia because of the great Caspian Sea oil bust.

Much Ado About Nothing

by Dale Alan Pfeiffer, FTW contributing editor

http://www.fromthewilderness.com/free/ww3/120502_caspian.html

[Ed. Note: The unfolding drama since 9-11-01 has been closely paralleled by another, perhaps more threatening one. Evolving more quietly, unmentioned and ignored by the major media, is a coming hydrocarbon energy crisis of civilization-threatening significance. Peak oil production is a reality, and it is happening now. What was once heralded as an oil bonanza in Central Asia -- and given life by ludicrous economic and political assertions insisting that demand always creates supply -- has proven itself to be an enormous bust. As Caspian reserve estimates have been continually revised lower -- from 200 billion barrels, to 100 billion barrels, to around 20 billion barrels -- the world has witnessed a dramatic shift in U.S. foreign policy toward belligerent and unilateral doctrines aimed at Iraq and Saudi Arabia. In the meantime, both politicians and economists perpetuate a dangerous fallacy which says that if you lock scientists up in a bank vault and give them enough money and enough demand, they can produce a hot dog with mustard and relish.]

This post from Richmond Indymedia adds a monetary wrinkle to the struggle: the dollar versus the euro.

The Real but Unspoken Reasons for the Upcoming Iraq War
by W.C. 9:54am Sun Feb 2 '03

http://richmond.indymedia.org/front.php3?article_id=2567&;group=webcast

Although completely suppressed in the U.S. media, the answer to the Iraq enigma is simple yet shocking. The upcoming war in Iraq is mostly about how the ruling class at Langley and the Bush administration view hydrocarbons at the geo-strategic level, and the overarching macroeconomic threats to the U.S. dollar from the euro. The Real Reason for this upcoming war is this administration’s goal of preventing further OPEC momentum towards the euro as an oil transaction currency standard. However, in order to pre-empt OPEC, they need to gain geo-strategic control of Iraq along with its 2nd largest proven oil reserves. This essay will discuss the macroeconomics of the "petro-dollar" and the unpublicized but real threat to U.S. economic hegemony from the euro as an alternative oil transaction currency. The following is how an astute and anonymous friend alluded to the unspoken truth about this upcoming war with Iraq...

"The Federal Reserve's greatest nightmare is that OPEC will switch its international transactions from a dollar standard to a euro standard. Iraq actually made this switch in Nov. 2000 (when the euro was worth around 80 cents), and has actually made off like a bandit considering the dollar's steady depreciation against the euro." (Note: the dollar declined 17% against the euro in 2002.)

Milan Rei writes of the many virtues of Iraqi oil--including a very cheap cost-of-production.

Oil & War

by Milan Rei, Znet

 

http://www.zmag.org/content/showarticle.cfm?SectionID=15&;ItemID=2935

 

There are two issues here - the value of Iraqi oil to US corporations, and the question of imperial cost/benefit analysis. Taking the second question first, throughout history imperial powers have expended more in wars of conquest and subjugation than could be earned from the colonies acquired or subdued. The US wars in Indochina are a staggering example of how disproportionate economic costs can be relative to perceived material benefits. The costs of empire are borne by society as a whole, while the benefits of empire are enjoyed by the influential few. Therefore, in general, for those who make policy - who share interests and viewpoints with those who hold domestic power - it is entirely rational to use the resources of society to secure the interests of the wealthy and powerful, even if expenditure far exceeds projected returns. Costs are socialised, benefits are privatised. That is the reality of our 'free market' economy.

Turning to the question of material benefit, there is one significant omission from Frum's article: Iraq's oil reserves. Iraq possesses the second largest proven oil reserves in the world after Saudi Arabia. The world's proven oil reserves are roughly 1,000bn barrels of oil. Iraq's proven reserves total 112bn barrels, over a tenth of all known oil supplies. As the Economist pointed out a few days before Frum's article, 'The big prize is control of the country's oil reserves.' While UN sanctions forbid foreigners from investing in the oilfields, 'that has not stopped firms rushing to sign contracts in the hope of exploiting fields when sanctions are lifted.' Oil companies from France, China, and India, even Royal Dutch/Shell have signed deals with Baghdad. 'Lukoil, a Russian giant, has an enormous field holding down over 11 billion barrels of oil; the firm plans to invest $4 billion over the lifetime of the field to develop it.'

The contracts are generous: analysts at Deutsche Bank estimate that plausible rates of return are 'of the order of 20%'.

Oil from the North Sea costs $3 to $4 a barrel to produce. According to John Teeling, 'head of one of the few western companies to admit to working in Iraq', Iraqi oil could cost as little as 97 cents per barrel to produce: 'Ninety cents a barrel for oil that sells for $30 - that's the kind of business anyone would want to be in. A 97% profit margin - you can live with that,' says Teeling.

The Economist published this piece on Russia and France's oil deals with the Saddam regime, since voided by the US invasion.

The Economist on Russian, French, US, and Iraqi oil

http://www.gasandoil.com/goc/news/ntm24432.htm

 

Leading firms such as TotalFinaElf (of France), ENI (Italy) and Repsol-YPF (Spain) have signed bilateral deals to bring Iraq's oil to market. These European countries now have a greater incentive (should they need it) to think twice before supporting any invasion. Boosting exports also adds to the impact that disrupting the supply of Iraqi oil would have on global prices -- a factor that might influence politicians even in America, given the fragility of the world's economy.

Mr Hussein is also dangling drilling and service contracts. A few months ago, a Turkish firm cut a deal to drill in the north of Iraq. More recently, a team from Tatneft, an oil contractor from the Russian republic of Tatarstan, arrived to drill the first of what may be over 70 wells.

That deal, believed to be the biggest for several years, is part of a much broader relationship that Mr Hussein has cultivated with Russian firms. Some industry insiders reckon that ZarubezhNeft, the Russian firm for which Tatneft is working, may have secured oil concessions worth up to $ 90 bn. …

The big prize is control of the country's oil reserves. UN sanctions forbid foreigners from investing in the oilfields. But that has not stopped firms rushing to sign contracts in the hope of exploiting fields when sanctions are lifted. Mr Hussein has long been handing out concessions to big firms from politically important countries.

France's Total, for example, holds rights to potentially huge reserves in the country. The national oil companies of China and India (not hitherto regarded as oil powerhouses) have also been given slices of the pie. Even Shell has signed a deal with Mr Hussein.

As well as ZarubezhNeft, a number of smaller Russian firms are doing a brisk trade with Iraq, in everything from oil supplies to drilling to spare parts. LUKoil, a Russian giant, has a majority stake in West Qurna, an enormous field holding over 11 bn barrels of oil; the firm plans to invest $ 4 bn over the lifetime of the field to develop it. To the annoyance of the Bush administration, Russia and Iraq even reached a deal on “economic co-operation” in energy and related sectors, rumoured to be worth as much as $ 40 bn.

There are now over 30 deals signed and ready to be implemented the moment that sanctions are lifted. There are now over 30 deals signed and ready to be implemented the moment that sanctions are lifted. Compared with most international norms, Iraq's beleaguered leader has offered terms that seem pretty generous. For example, say analysts at Deutsche Bank, plausible rates of return are “of the order of 20 %”. Some of these contracts are for exploring the vast western desert of Iraq, which some experts suspect could hold huge new reserves.

All this must be bad news for those excluded from the party: the Americans. Yet they do not seem too worried. That is because there is one teeny doubt about all these deals. Will they be worth the paper they are written on when Mr Hussein one day becomes a former dictator?
American oilmen insist that any new regime would tear up existing contracts. After all, they were signed by a ruthless tyrant with companies eager to keep him in office. Why would any democratic Iraqi government, especially one brought to power by America's efforts, honour them? The head of the Iraqi National Congress, an umbrella opposition group, has openly declared that “American companies will have a big shot at Iraqi oil” -- if he gets to run the show. Assorted other opposition leaders have been touring Texas making similar promises to the oil giants.

These next three posts are gleaned from David Johnson's indispensable Russia Weekly list. If you've read this far, you should subscribe to his email news list.

The first is an Agence France-Presse wire story about Russian oil companies' position in post-war Iraq.

Russian oil companies have little hope in post-war Iraq: US expert
April 9, 2003
AFP

 

 

http://www.cdi.org/russia/johnson/7140-15.cfm

 

A top US energy expert warned Russian oil companies Wednesday that they will likely be shut out of contracts to develop Iraq's vast oil reserves once the US-led war in the country is over.

"Our leadership follows this logic: it's unlikely someone will give you a piece of the pie if you didn't help bake it," Robert Ebel, top energy anaylst at the Washington-based Center for Strategic and International studies, said in an interview with Kommersant business daily.

Russian oil companies have invested more than one billion dollars over the past seven years into Iraq's vast oil reserves -- second only to Saudi Arabia -- but they risk exclusion from post-war contracts because of Russia's fierce opposition to the US-British war.

The expert's warning came as Russia's top oil major LUKoil said it would consider seeking a court injunction to block any attempt by competitors to develop Iraq's West Qurna-2 oilfield if its contract is thrown out by US-led forces governing post-war Iraq.

The second is a Toronto Globe and Mail account of the US/Russia rift. 

Iraq puts chill on U.S.-Russia relationship
By MICHAEL DEN TANDT

The Globe and Mail (Canada)
April 10, 2003

 

http://www.cdi.org/russia/252-5.cfm

The first and most obvious reason is Iraq's Soviet-era debt to Russia, estimated at $8-billion (U.S.), which the Russians fear won't be honoured by a new government. Second, there's Lukoil, Russia's largest oil company, which has -- or had -- a $3.5-billion deal with Saddam Hussein's regime to develop Iraq's massive Western Kurna oil field. Although Russia is strenuously lobbying the United States to ensure that both debt and oil contracts are honoured, the outcome is uncertain.

But there's more to the rift than that. The nut of it is utility. With Iraq, home to the world's second-largest reserves of easily accessible oil, in the United States' back pocket, Russian energy exploitation suddenly becomes far less important. And the inherent drawbacks of Russian energy, as well as a fundamental conflict of interests over price, become impossible to ignore.

To begin with, Russia needs and wants oil prices to stay high. David Victor and Nadejda Victor, writing in the current issue of Foreign Affairs, estimate that each $1 decrease in the price-per-barrel translates into a billion-dollar loss for Russia's state budget. A price collapse would devastate Russia's fragile economy. Meantime, the United States needs crude prices to drop, and quickly, to avert recession.

Finally, a Newhouse News dispatch on why Russia is not being treated as shabbily as France by the Bush administration.

 

Why Bush Exempts Putin From Punishment
BY JOHN FARMER
May 1, 2003
c.2003 Newhouse News Service

 

http://www.cdi.org/russia/255-4.cfm

 

Why the different treatment? Because France, despite Chirac's Gaullist pretentions to leadership, has nothing to offer that Bush and Washington need, not even in Europe. Not that Chirac would offer help in any case. Putin, on the other hand, has something to offer in the reconstruction of Iraq, in negotiations with North Korea over nuclear weapons and in the war against terrorism.

Bush wants the U.N. embargo on Iraq lifted to hasten the sale of Iraqi oil and help finance the revival of ordinary life in the country. France is once again emerging as an obstacle. But a decision by Putin to back Bush and lift sanctions would leave Chirac isolated in the United Nations, something Washington believes he won't be willing to risk in the wake of the convincing U.S.-British victory in Iraq.

And finally: This dispatch from a Russian news site puts a more Machiavellian spin on Russia's long-term interests in the matter.

RUSSIA USING THE UNITED STATES AS A BUFFER IN CENTRAL ASIA
Russia is unlikely to retain its influence in Central Asia
Nezavisimaya Gazeta
April 30, 2003
Author: not indicated

http://www.cdi.org/russia/255-7.cfm

IF AMERICA GAINS CONTROL OF CENTRAL ASIAN STATES, THEY COULD BECOME A BUFFER FOR RUSSIA AGAINST AGGRESSIVE ISLAMIC EXTREMISM. IT IS TO RUSSIA'S ADVANTAGE TO HAVE THE US ENGAGED IN CENTRAL ASIA, SINCE THE US WILL BE SPENDING ITS RESOURCES, AND PERHAPS EVEN TURNING CENTRAL ASIA ANTI-AMERICAN.

Thanks to all the Bush Wars readers who sent links, including Keith (Kool Kat), Michael McFadden, Michelle Quinn, and bat.blogspot.com

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