Lettuce and Pickles

Posted by Cutler on January 09, 2007
Iraq

Iraqi oil is back in the news.

The most recent flurry of chatter was prompted by an article in the Independent on Sunday entitled, “The Future of Iraq: The Spoils of War.”

The central focus of the article is on a draft hydrocarbons law that has the Iraqi oil industry operate under production sharing agreements or PSAs that provide very generous terms of international oil companies.

An article in the Turkish Daily News suggests that the PSA terms in the draft law will be extraordinarily generous:

According to the Production Sharing Agreement (PSA) system to be invoked by the draft, companies will have the right to retain 75 percent of their annual income from Iraqi oilfields, until they match their oil production costs. After then they will be able to pocket 20 percent of the annual income. Experts point to the fact that this is double normal market rates.

The Iraqi oil story is extremely import, but the “news” is not the PSA system.  I discussed negotiations over PSA terms in a couple of October posts (here and here).  Greg Muttittt and others made news with the PSA story back in November 2005 with a report entitled “Crude Designs.”

The centrality of oil to US plans in Iraq cannot be overstated.  I have always liked Chomsky’s way of framing that part of the story:

[W]e are under a rigid doctrine in the West, a religious fanaticism, that says we must believe that the United States would have invaded Iraq even if its main product was lettuce and pickles… Well, you know, if you have three gray cells functioning, you know that that’s perfect nonsense. The U.S. invaded Iraq because it has enormous oil resources, mostly untapped, and it’s right in the heart of the world’s energy system.

The problem, however, has always been and continues to be for the Bush administration to get the domestic Iraqi politics and regional geo-politics aligned in such a way to get the deals done and the oil flowing.

On this score, it should be noted that a draft law–even if adopted by the current Iraqi parliament–does not yet constitute “success.”  Here is one sober industry reaction (Simon Wardell, “Draft Oil Law: New Iraqi Law Will Reportedly Allow Large-Scale Investment by Western Oil Majors,” Global Insight Daily Analysis, January 8, 2007):

[T]he legislation is just the first of several steps which will be required before any wells are sunk. The security situation still presents a major challenge which no major is currently willing to face. While deals may be struck, they will be contingent upon an improvement in the security situation. There will also be major risks in pouring capital into Iraq’s oil sector due to the political instability. Even if the security picture improves, governments may change, and the status of PSAs may come under question at a later date, as they have in Russia. The lack of a political consensus in Iraq makes this risk more significant

The crux of the matter is that the political stability favored, if not required, by the Oil Majors was critically upset the day in May 2003 that the Bush administration adopted its de-Baathification policy and thoroughly undermined by the three major votes of 2005 that handed political power to Iraq’s Shiites and Kurds.

From the perspective of the foreign policy establishment, the preferred path for political stability in Iraq was then and continues to be benign dictatorship under Sunni minority control.

The proper model for a simple US oil grab is the Libya deal, not Iraq.  Saddamism without Saddam.

So the Bush administration has been scrambling to construct some kind of political stability, not only within Iraq but within the region, that would allow the oil to flow.

The News from Kurdistan

One key sticking point has been the locus of control over new oil field development within Iraq.  In other words, who gets to sign the contracts?

The Kurds have always hoped to win control for the Kurdish Regional Government in northern Iraq–and to include the oil-rich city of Kirkuk within that regional entity.

The news of an oil “breakthrough” in Iraq is mostly on the Kurdish front.

Shiite forces abanonded the Kurds on this issue.

Now, the Kurds appear to have conceded the point.

In late December 2006, the Kurdish Globe reported:

Oil has been a major issue dividing Kurdish and Iraqi authorities in post-war Iraq. KRG says it is constitutionally allowed to drill for oil in areas under its control, but Iraqi oil officials have threatened that KRG’s oil deals will not be “valid.”

Most of the oil wells are in southern Iraq, and the oil law allows KRG to talk with companies and make deals for oil production,” [Kurdistan Regional Government Prime Minister Nechirvan] Barzani said…

According to preliminary agreements between the KRG and federal authorities, a representative from the Baghdad government will attend talks between the KRG and oil firms. Once the KRG reaches a deal with a company to drill for oil in Kurdistan, the contract will be sent to Baghdad for assessment and approval by an Iraqi government committee. The contract will then be returned to the KRG and it will have 60 days to sign it…

“There needs to be some criteria according to which the (oil) contracts are investigated so as to know if there is any corruption in the deals or to what extent the company will implement its obligations,” Barzani said.

Note well: this is Barzani’s concession speech and it will not likely be greeted with thunderous applause in Kurdistan.  Barzani’s two justifications for centralized control–that most of the wells are in southern Iraq (and therefore a source of wealth for Kurds only under centralization) and that central authorities need to be able to investigate corruption–are very thin fig leaves, given the history of Kurdish demands for autonomy.  Look for an internal Kurdish split that would challenge Barzani for “selling out” the Kurds.

The Kurdish concession has regional implications insofar as Turkey has been firm in its opposition to Kurdish autonomy.  Indeed, just as the Kurds were conceding the point, Kirkuk oil began to flow in the pipeline to Turkey’s port of Ceyhan.  Perhaps it is no coincidence.

Note, too, that the future of Kurdish control of Kirkuk also looks increasingly fragile, with John McCain now leading a campaign to delay a referendum on Kirkuk that would likely establish Kurdish control of the city.

In the last instance, these Kurdish concessions are part of a larger campaign to restore centralized national political control in Iraq.

On the oil front, centralization is likely intended to appease Sunni rejectionists.  It will also please Muqtada al-Sadr who is a strident critic of Kurdish control of Kirkuk and of decentralization, more generally.  Is Sadr willing to trade privatization (i.e., production sharing agreements) for centralization?

If so, then the US will have effectively exploited the threat of Kurdish regional PSAs to extract comparable concessions from Iraqi nationalists.

3 Comments to Lettuce and Pickles

  • I generally find your analyses to be quite well developed, but there are some important elisions in this post I would like to see examined more closely.

    In agreeing with Chomsky’s fantastic description of a West in which “a religious fanaticism, that says we must believe that the United States would have invaded Iraq even if its main product was lettuce and pickles,” you describe the oil motive as “central” to US policy in Iraq, and that this motive cannot be “overstated.” In fact in can be, and that is just what you have done.

    I think evidence for this lies in the way you have elided the material affect US policy has had on the Iraqi, and Western, oil industries. You claim that:

    The crux of the matter is that the political stability favored, if not required, by the Oil Majors was critically upset the day in May 2003 that the Bush administration adopted its de-Baathification policy and thoroughly undermined by the three major votes of 2005 that handed political power to Iraq’s Shiites and Kurds.

    You follow this very closely by stating:

    The proper model for a simple US oil grab is the Libya deal, not Iraq. Saddamism without Saddam.

    So the Bush administration has been scrambling to construct some kind of political stability, not only within Iraq but within the region, that would allow the oil to flow.

    The rest of your post attempts to show that, in manipulating Kurdish claims to oil rights, the Bush administration has sought to centralize and privatize oil rights in Iraq in order both to secure a stable political solution there, and to reward Western (one would think, American) Oil Majors. But you have failed to address the very actions by which you’ve described the Bush administration as having acted against the interests of the oil majors by de-Baathifiying Iraq. One might also suggest the invasion itself went against the interests of the oil majors, unless that is what you meant by de-Batthification. Why did Bush not simply continue his initial policy of dropping sanctions against Iraq, and maintain Saddamism with Saddam? Or even have him removed but without overwhelming US involvement?

    I know you are very aware of the dangers inherent in assuming Bush simply doesn’t know what he’s doing, or that his neocon advisers on Iraq have no real strategy. Surely then, there is more to this elision than it’s mere omission of a significant contradiction to the meme of the war’s serving only the interests of the oil majors? Nevertheless, the elision here presents the view that Bush simply made a mistake in de-Baathification – an obvious one at that, which only reinforces the view you carefully describe in “Beyond Incompetence” of Bush and his neocons as bumblers – if not entirely well meaning in this instance.

    And yet, if the centrality of the oil motive to Bush’s Iraq policy cannot be overstated, what other explanation can there be for de-Baathification and it’s inherent negative impact on the oil majors’ plans? It must have been a mistake. But this is simply a way of avoiding difficulties with your premise. In fact, an alternative is supplied by your own description of Kanan Makiya’s role in “convincing” the Bush administration to de-Baathify Iraq, in which Mr. Makiya insisted there could be no real democracy in Iraq without de-Baathification. I believe it therefore better fits the facts to suggest that while the oil motive is certainly important to Bush’s (and any American president’s) Iraq policy, perhaps even “central,” that it shares and in some cases has been superceded by another important motive: democratization.

    Your analysis of the split between Right-Zionists and Right-Arabists within the Bush administration has been very instructive. At the very least in this circumstance, it instructs us that even in the supposedly strictly disciplined Bush administration there are various strains of influence that are in opposition to one another, and that therefore it’s foreign policy is not a monolithic behemoth beholden only to corporate interests. We should therefore not allow justified crticism of the PSA negotiations, for example, to close our minds to competing strains within that policy. In the way in which you described ignorance of the split within Bush’s administration leading it’s critics to fall blindly into essentially imperialist positions, I fear that anti-imperialism can lead us unthinkingly into anti-democratic ones.

  • So many elisions, so little time.

    Thanks for the long, thoughtful comment. Isn’t there a distinction to be made between policies designed to serve the interests of the oil majors (part of the story in Iraq, but hardly the whole deal) and identifying the centrality of oil as a geostrategic consideration?

    De-Baathification and the 2005 votes are only comprehensible within the latter framework. As I wrote in “Beyond Incompetence,” however, the aim in these policies was not to support democratization as a matter of principle but to empower the Iraqi Shia as one of several steps designed to transform the balance of power in the Gulf.

    Just one point of clarification: where did I ever describe Kanan Makiya as “convincing” the Bush administration to de-Baathify Iraq? I don’t ever remember even thinking that thought, never mind putting it in print.

  • Thanks for your response Professor Cutler.

    You are quite right to wonder where on earth I pulled the Kanan Makiya bit from – it was actually Gilbert Achcar at Counterpunch who described Makiya’s apparent influence on the Bush administration. I conflated Achcar’s work with yours because “Beyond Incompetence” linked to it – my apologies.

    Still, de-Baathification represents a significant contradiction to an oil motivation which you described as being so central to the Iraq war that it’s importance could not be overstated. I don’t see it fitting quite as cleanly as you apparently do into “the centrality of oil as a geostrategic consideration.” Nor do I see the Right-Zionists’ realignment of US Middle East policy with the Shia against the Saudis as contradicting a commitment to democracy in principle. Rather I think democratization, which in Iraq is necessary to establish Shia dominance without creating the instability the Oil Majors fear, is required for the overall strategy to succeed.

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