Greg Palast - Keeping Iraq's Oil In The Ground

Posted on Wednesday, November 08 at 09:12 by bracewell
An international industry policy of suppressing Iraqi oil production has been in place since 1927.

Chalabi's plan for Iraq to pump 12 million barrels a day, a million more than Saudi Arabia, is not "ridiculous" from a raw resource view, it is ridiculous politically. It would never be permitted.


In 1925, Calouste Gulbenkian slicked the King Faisal, ruler of the country recently created by Churchill, into giving Gulbenkian's "Iraq Petroleum Company" (IPC) exclusive rights to all of Iraq's oil. Gulbenkian sold 95% of this concession to a combine of western oil giants: Anglo-Persian(BP), Royal Dutch Shell, CFP of France, and the Standard Oil ( ExxonMobil.) They bought Iraq's concession to keep it off the market and would enjoy a lift in worldwide prices.

All the oil company executives, gathered in the hotel room, and agreed not to drill within the gulf oil fields centered on Iraq (except as a group).

Standard Oil combine, renamed the Arabian-American Oil Company (Aramco), would limit its drilling to Saudi Arabia. Anglo-Persian (BP), would pump almost all its oil from Persia (Iran). Anglo-Persian (BP) in accordance with the Red-Line Agreement, shared its Kirkuk and Basra fields with its IPC group - and drilled no more. The following was written three decades ago:

Although its original concession of March 14, 1925, covered all of Iraq, the Iraq Petroleum Co., limited its production to fields constituting only 0.5% of the country's total area. During the Great Depression, the world was awash with oil and greater output from Iraq would simply have driven the price down to even lower levels.

The British Foreign Office was afraid this freeze woud stoke nationalist anger, BP-IPC agreed to drill lots of wells, but make them absurdly shallow and place them where, wrote a company manager, "there was no danger of striking oil." This suppression of Iraq's production, begun in 1927, has never ceased.

In the early 1960s, the failure to produce oil, caused Iraq to cancel the BP-Shell-Exxon concession and seize the oil fields. President Kennedy refused to call Iraq's seizure an "expropriation" akin to Castro's seizure of U.S.-owned banana plantations. Kennedy's view was that Anglo-American companies had it coming to them because they had refused to honor their legal commitment to drill.

Soon, the Saudi controlled OPEC cartel capped Iraq's productionat a sum equal to Iran's, though the Iranian reserves are far smaller than Iraq's. The excuse for this quota equality was to prevent war between Iraq and Iran. (During the Arab oil embargo of 1974, Senator Edmund Muskie revealed a secret intelligence report of "fantastic" reserves of oil in Iraq undeveloped because U.S. oil companies refused to add pipeline capacity.)

Then, to keep Iraq's Ba'athists quiet, Saudi Arabia simply funded Saddam's war against Iran and gave the dictator $7 billion for his "Islamic bomb" program. The Iranian bombing of the Basra fields (1980-88) put another kink in Iraq's oil production.

In August 1990, Kuwait's siphoning of borderland oil fields jointly owned with Iraq gave Saddam the excuse he needed to take Kuwait's OPEC quota.

Saddam's plan backfired. The Basra oil fields not crippled by Iran were demolished in 1991 by American B-52s. This gave the West the authority for a more direct oil suppression method called the "Sanctions" program, later changed to "Oil for Food." Now we get to the real reason for the U.N. embargo on Iraqi oil exports.

According to the official U.S. position, sanctions were critical to preventing Iraq from acquiring equipment that could be used to reconstitute banned weapons of mass destruction (WMD) programs. If cutting Saddam's allowance was the purpose, then sanctions, limiting oil exports, was a very suspect method indeed - the elimination of two million barrels a day increased Saddam's revenue. One might conclude that sanctions were less about WMD and more about earnings per share of oil sellers. Today's fight over how much of Iraq's oil to produce (or suppress) simply extends into this century the last century's pump-or-control battles.

Big Oil has done its best to keep Iraq's oil buried deep in the ground to keep prices high in the air. Iraq has 74 known fields and only 15 in production; 526 known "structures" (oil-speak for "pools of oil"), only 125 drilled. As the James Baker/Council on Foreign Relations paper says, "Saudi Arabia may punish Iraq."

Production decisions have been kept out of Iraqi's hands by the 2003 invasion and resistance to invasion. Iraq's output in 2003, 2004 and 2005 was less than under the restrictive Oil-for-Food Program. This decline in output has tripled the yearly profits (as compared to pre-invasion 2002) of the five U.S. oil majors to $89 billion.

That suggests an interesting arithmetic equation. Big Oil's profits are up $89 billion a year in the same period the oil industry boosted contributions to Bush's re-election campaign to roughly $40 million.

SUMMARY: A History of Suppressing Oil Production in Iraq

1925-28 "Mr. 5%" sells his monopoly on Iraq's oil to British Petroleum and Exxon, who sign a "Red-Line Agreement" vowing not to compete by drilling independently in Iraq.

1948 Red-Line Agreement ended, replaced by oil combines' "dog in the manger" strategy - taking control of fields, then capping production-drilling shallow holes where "there was no danger of striking oil."

1961 OPEC, founded the year before, places quotas on Iraq's exports equal to Iran's, locking in suppression policy.

1980-88 Iran-Iraq War. Iran destroys Basra fields. Iraq cannot meet OPEC quota. 1991 Desert Storm. Anglo-American bombings cut production.

1991-2003 United Nations Oil embargo (zero legal exports) followed by Oil-for-Food Program limiting Iraqi sales to 2 million barrels a day.

2003-? "Insurgents" sabotage Iraq's pipelines and infrastructure.

2004 Options for Iraqi OilThe secret plan adopted by U.S. State Department overturns Pentagon proposal to massively in crease oil production. State Department plan, adopted by government of occupied Iraq, limits state oil company to OPEC quotas.

Note: Greg Palast - Keeping ...

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