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On the floor of the House of Representatives, January 11, 2007
Mr. McDERMOTT: Mr. Speaker, the American people have not received very much information about a major issue in and around the Iraq war, and the oil industry would like to keep it just that way.
This is the war, stripped bare of all the bullshit and hemming and hawing, and that truth should ring out with a clarity that withers every lame ass talking point that lets more of our soldiers and Iraqis die to make very wealthy assholes even wealthier. I searched for "production sharing agreements" (the oil industry's mechanism to rip off Iraq) in the congressional record, and all the hits I got in the current session were from Jim McDermott of Washington. Right now, the oil companies and Bushies are pushing the Iraqis hard to finalize a hydrocarbon law that would make it possible for the oil companies to take massive profits out of the country. You wouldn't know it by watching the evening news, and if your newspaper mentioned it at all, it was buried on page D52. The Iraqis know about it though. When the first guy Bush sent to run Iraq, Gen. Jay Garner, heard about the plan to privatize and expropriate Iraq's oil wealth, he said it would incite rebellion against the occupation. He was right. And fired. There is some hope for our democracy if at least one guy in Congress is talking about what's really going on, and not mouthing condescending recycled talking points about going to Iraq to be the good fairy of democracy and the Iraqis being ungrateful for our fairy dust. When all Democrats in Congress start talking like this, and refuse to rehash the propaganda any longer, the war will come to an end because the propaganda will look like the pathetic embarrassing piece of shit it is by comparison. This is the return to reality and not just the nicer lies some other democrats have offered. But that's beside the point at the moment. I'm going to write McDermott a letter and thank him for representing me in Congress, even though I live more than a thousand miles away from his district.
OIL INDUSTRY MAIN BENEFICIARY OF IRAQ WAR -- (House of Representatives - January 11, 2007)--- The SPEAKER pro tempore (Mr. Welch of Vermont). Under a previous order of the House, the gentleman from Washington (Mr. McDermott) is recognized for 5 minutes. Mr. McDERMOTT. Mr. Speaker, the American people have not received very much information about a major issue in and around the Iraq war, and the oil industry would like to keep it just that way. Fortunately, investigative journalism is still being practiced, and I want to share information uncovered by a reporter for AlterNet, in the United States, and a major Sunday story this week in The Independent, a newspaper in the United Kingdom. The number one Iraq story for all of 2006 on AlterNet, which is an Internet-based news and opinion site, was a two-part series by a reporter, Joshua Holland, entitled: ``Bush's Petro-Cartel Almost Has Iraq's Oil.'' Last Sunday, The Independent carried stories with these headlines: ``Future of Iraq : The Spoils of War, How the West Will Make a Killing on Iraqi Oil Riches.'' And ``Blood and Oil: How the West Will Profit from Iraq's Most Precious Commodity.'' Members of Congress are limited in how much information we can enter into the record at one time, so I will enter into the record The Independent story. I will also encourage every American to seek out and read the complete AlterNet story, which is available online. These investigative reports paint a disturbing picture and raise troubling questions about big oil's attempting to steal the oil wealth and resources of the Iraqi people. From the beginning of the Iraq invasion, more moderate voices, especially overseas, questioned whether the ulterior motive behind toppling Saddam Hussein was a grab for Iraqi oil. In this scenario, democracy is a by-product of oil production , not the real reason for military action in Iraq . Gaining access to the oil wealth of Iraq has had oil industries salivating for years. Gaining control of that oil wealth would be a prize beyond compare for the oil industry. Iraq has the third largest oil reserves in the world, and there are many oil geologists who believe that vast additional oil reserves are just waiting to be discovered in Iraq's western desert. They call it the Holy Grail, and some believe the untapped riches could propel Iraq from third to first place in the world's oil reserves. An estimated 115 billion barrels of oil reserves are under Iraq . Today's price is $53 a barrel, and that is an 18-month low. The American people are still suffering from the oil price shocks and GPO's PDF
high prices at the pump, and the oil industry is booking record profits in the billions of dollars every quarter, record profits in a world that is addicted to oil.
In 1999, Vice President Cheney was running Halliburton, and he said in a speech that another 50 million barrels of oil would be needed by the end of the decade, and the key was the Middle East.
This administration and the British prime minister have repeatedly said that the U.S. invasion was not about oil. But these investigative reporters say a new law is quietly working its way through the Iraqi government that would give unprecedented access, control and oil wealth to Western oil companies. It would happen under what is known as a production sharing agreement , a PSA.
Here is how The Independent put it: ``PSAs allow a country to retain legal ownership of its oil but gives a share of profits to international companies that invest in infrastructure and operation of the wells, pipelines and refineries.''
The news account continues: ``Their introduction would be a first for a major Middle Eastern oil producer. Saudi Arabia and Iran, the world's number one and twoexporters, both tightly control their industries through state-owned companies with no appreciable foreign collaboration, as do most members of the Organization of Petroleum Exporting Countries, OPEC.''
The PSA's would give big oil in Iraq deals that would last for 30 to 40 years. These deals, the news reports point out, would force Iraq to share its oil wealth with Western outsiders, not their own people. Up to 70 percent of the profits would go to outside producers in the first years, and the news media points out that these deals could be enforced ahead of any social and economic reforms in Iraq and ahead of any social programs. One person quoted called it ``colonialism lite.''
The President said it is not about oil. The prime minister said it is not about oil. They said Iraqi oil was for Iraqi people. But the legislation working its way through the Iraqi government is about nothing but Western access to the oil and its incredible wealth. The leaked drafts of the legislation show the West in a role with access and control, including a provision in the leaked draft document that would enable Western oil companies to transfer their wealth right out of Iraq . They don't have to leave it in Iraq at all.
Quoting directly from the leaked draft, ``A foreign person may repatriate its exports in accordance with foreign exchange regulations in force at the time.'' In fact, the language is so favorable to companies that they would be able to take every bit out and sell the rest to the world.
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A vast amount of Iraq's wealth would be up for sale, by foreigners, to foreigners.
Quoting the leaked draft: ``It may freely transfer shares pertaining to any non-Iraqi partners.''
The United States has been in Iraq for over 4 years already.
How long will we be there if western oil companies are given free rein to put a vice grip on Iraq's oil?
If western oil companies get a 30-year agreement , we may call Iraq the 30-year war.
The President said Iraq was all about democracy. News reports now give us a picture that say it might have been all about the oil.
Read the news reports and decide for yourself.
I include for the RECORD the article from The Independent.
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Blood and Oil: How the West Will Profit From Iraq's Most Precious Commodity
So was this what the Iraq war was fought for, after all? As the number of US soldiers killed since the invasion rises past the 3,000 mark, and President George Bush gambles on sending in up to 30,000 more troops, The Independent on Sunday has learnt that the Iraqi government is about to push through a law giving Western oil companies the right to exploit the country's massive oil reserves.
And Iraq's oil reserves, the third largest in the world, with an estimated 115 billion barrels waiting to be extracted, are a prize worth having. As Vice-President Dick Cheney noted in 1999, when he was still running Halliburton, an oil services company, the Middle East is the key to preventing the world running out of oil.
Now, unnoticed by most amid the furore over civil war in Iraq and the hanging of Saddam Hussein, the new oil law has quietly been going through several drafts, and is now on the point of being presented to the cabinet and then the parliament in Baghdad. Its provisions are a radical departure from the norm for developing countries: under a system known as ``production -sharing agreements'', or PSAs, oil majors such as BP and Shell in Britain, and Exxon and Chevron in the US, would be able to sign deals of up to 30 years to extract Iraq's oil.
PSAs allow a country to retain legal ownership of its oil, but gives a share of profits to the international companies that invest in infrastructure and operation of the wells, pipelines and refineries. Their introduction would be a first for a major Middle Eastern oil producer. Saudi Arabia and Iran, the world's number one and two oil exporters, both tightly control their industries through state-owned companies with no appreciable foreign collaboration, as do most members of the Organisation of Petroleum Exporting Countries, Opec.
Critics fear that given Iraq's weak bargaining position, it could get locked in now to deals on bad terms for decades to come. ``Iraq would end up with the worst possible outcome,'' said Greg Muttitt of Platform, a human rights and environmental group that monitors the oil industry. He said the new legislation was drafted with the assistance of BearingPoint, an American consultancy firm hired by the U.S. government, which had a representative working in the American embassy in Baghdad for several months.
``Three outside groups have had far more opportunity to scrutinise this legislation than most Iraqis,'' said Mr. Muttitt. ``The draft went to the U.S. government and major oil companies in July, and to the International Monetary Fund in September. Last month I met a group of 20 Iraqi MPs in Jordan, and I asked them how many had seen the legislation. Only one had.''
Britain and the United States have always hotly denied that the war was fought for oil. On 18 March 2003, with the invasion imminent, Tony Blair proposed the House of Commons motion to back the war. ``The oil revenues, which people falsely claim that we want to seize, should be put in a trust fund for the Iraqi people administered through the UN,'' he said.
``The United Kingdom should seek a new Security Council Resolution that would affirm ..... the use of all oil revenues for the benefit of the Iraqi people.''
That suggestion came to nothing. In May 2003, just after President Bush declared major combat operations at an end, under a banner boasting ``Mission Accomplished'', Britain co-sponsored a resolution in the Security Council which gave the United States and UK control over Iraq's oil revenues. Far from ``all oil revenues'' being used for the Iraqi people, Resolution 1483 continued to make deductions from Iraq's oil earnings to pay compensation for the invasion of Kuwait in 1990.
That exception aside, however, the often-stated aim of the United States and Britain was that Iraq's oil money would be used to pay for reconstruction. In July 2003, for example, Colin Powell, then Secretary of State, insisted: ``We have not taken one drop of Iraqi oil for U.S. purposes, or for coalition purposes. Quite the contrary ..... It cost a great deal of money to prosecute this war. But the oil of the Iraqi people belongs to the Iraqi people; it is their wealth, it will be used for their benefit. So we did not do it for oil.''
Paul Wolfowitz, Deputy Defense Secretary at the time of the war and now head of the World Bank, told Congress: ``We're dealing with a country that can really finance its own reconstruction, and relatively soon.''
But this optimism has proved unjustified. Since the invasion, Iraqi oil production has dropped off dramatically. The country is now producing about two million barrels per day. That is down from a pre-war peak of 3.5 million barrels. Not only is Iraq's whole oil infrastructure creaking under the effects of years of sanctions, insurgents have constantly attacked pipelines, so that the only steady flow of exports is through the Shia-dominated south of the country.
Worsening sectarian violence and gangsterism have driven most of the educated elite out of the country for safety, depriving the oil industry of the Iraqi experts and administrators it desperately needs.
And even the present stunted operation is rife with corruption and smuggling. The Oil Ministry's inspector-general recently reported that a tanker driver who paid $500 in bribes to police patrols to take oil over the western or northern border would still make a profit on the shipment of $8,400.
``In the present state, it would be crazy to pump in more money, just to be stolen,'' said Greg Muttitt. ``It's another reason not to bring in $20bn of foreign money now.''
Before the war, Mr. Bush endorsed claims that Iraq's oil would pay for reconstruction. But the shortage of revenues afterwards has silenced him on this point. More recently he has argued that oil should be used as a means to unify the country, ``so the people have faith in central government'', as he put it last summer.
But in a country more dependent than almost any other on oil--it accounts for 70 per cent of the economy--control of the assets has proved a recipe for endless wrangling. Most of the oil reserves in areas controlled by the Kurds and Shias, heightening the fears of the Sunnis that their loss of power with the fall of Saddam is about to be compounded by economic deprivation.
The Kurds in particular have been eager to press ahead, and even signed some small PSA deals on their own last year, setting off a struggle with Baghdad. These issues now appear to have been resolved, however: a revenue-sharing agreement based on population
GPO's PDF
was reached some months ago, and sources have told the IoS that regional oil companies will be set up to handle the PSA deals envisaged by the new law.
The Independent on Sunday has obtained a copy of an early draft which was circulated to oil companies in July. It is understood there have been no significant changes made in the final draft. The terms outlined to govern future PSAs are generous: according to the draft, they could be fixed for at least 30 years. The revelation will raise Iraqi fears that oil companies will be able to exploit its weak state by securing favourable terms that cannot be changed in future.
Iraq's sovereign right to manage its own natural resources could also be threatened by the provision in the draft that any disputes with a foreign company must ultimately be settled by international, rather than Iraqi, arbitration.
In the July draft obtained by The Independent on Sunday, legislators recognise the controversy over this, annotating the relevant paragraph with the note, ``Some countries do not accept arbitration between a commercial enterprise and themselves on the basis of sovereignty of the state. ``
It is not clear whether this clause has been retained in the final draft.
Under the chapter entitled ``Fiscal Regime'', the draft spells out that foreign companies have no restrictions on taking their profits out of the country, and are not subject to any tax when doing this.
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``A Foreign Person may repatriate its exports proceeds .'' Shares in oil projects can also be sold to other foreign companies: ``It may freely transfer shares pertaining to any non-Iraqi partners.'' The final draft outlines general terms for production sharing agreements, including a standard 12.5 per cent royalty tax for companies.
It is also understood that once companies have recouped their costs from developing the oil field, they are allowed to keep 20 percent of the profits, with the rest going to the government. According to analysts and oil company executives, this is because Iraq is so dangerous, but Dr Muhammad-Ali Zainy, a senior economist at the Centre for Global Energy Studies, said: ``Twenty percent of the profits in a production sharing agreement , once all the costs have been recouped, is a large amount.'' In more stable countries, 10 percent would be the norm.
While the costs are being recovered, companies will be able to recoup 60 to 70 percent of revenue; 40 percent is more usual. David Horgan, managing director of Petrel Resources, an Aim-listed oil company focused on Iraq , said: ``They are reasonable rates of return, and take account of the bad security situation in Iraq . The government needs people, technology and capital to develop its oil reserves. It has got to come up with terms which are good enough to attract companies. The major companies tend to be conservative.''
Dr. Zainy, an Iraqi who has recently visited the country, said: ``It's very dangerous ..... although the security situation is far better in the north.'' Even taking that into account, however, he believed that ``for a company to take 20 percent of the profits in a production -sharing agreement once all the costs have been recouped is large''.
He pointed to the example of Total, which agreed terms with Saddam Hussein before the second Iraq war to develop a huge field. Although the contract was never signed, the French company would only have kept 10 percent of the profits once the company had recovered its costs.
And while the company was recovering its costs, it is understood it agreed to take only 40 percent of the profits, the Iraqi government receiving the rest.
Production -sharing agreements of more than 30 years are unusual, and more commonly used for challenging regions like the Amazon where it can take up to a decade to start production . Iraq , in contrast, is one of the cheapest and easiest places in the world to drill for and produce oil. Many fields have already been discovered, and are waiting to be developed.
Analysts estimate that despite the size of Iraq's reserves--the third largest in the world--only 2,300 wells have been drilled in total, fewer than in the North Sea.
Confirmation of the generous terms--widely feared by international nongovernment organisations and Iraqis alike--have prompted some to draw parallels with the production -sharing agreements Russia signed in the 1990s, when it was bankrupt and in chaos.
At the time Shell was able to sign very favourable terms to develop oil and gas reserves off the coast of Sakhalin island in the far east of Russia. But at the end of last year, after months of thinly veiled threats from the environment regulator, the Anglo-Dutch company was forced to give Russian state-owned gas giant Gazprom a share in the project.
Although most other oil experts endorsed the view that PSAs would be needed to kick-start exports from Iraq , Mr. Muttitt disagreed. ``The most commonly mentioned target has been for Iraq to increase production to 6 million barrels a day by 2015 or so,'' he said. ``Iraq has estimated that it would need $20bn to $25bn of investment over the next five or six years, roughly $4bn to $5bn a year. But even last year, according to reports, the Oil Ministry had between $3bn and $4bn it couldn't invest. The shortfall is around $lbn a year, and that could easily be made up if the security situation improved.
``PSAs have a cost in sovereignty and future revenues. It is not true at all that this is the only way to do it.'' Technical services agreements, of the type common in countries which have a state-run oil corporation, would be all that was necessary.
James Paul of Global Policy Forum, another advocacy group, said: ``The U.S. and the UK have been pressing hard on this. It's pretty clear that this is one of their main goals in Iraq .'' The Iraqi authorities, he said, were ``a government under occupation, and it is highly influenced by that. The U.S. has a lot of leverage ..... Iraq is in no condition right now to go ahead and do this.''
Mr. Paul added: ``It is relatively easy to get the oil in Iraq . It is nowhere near as complicated as the North Sea. There are super giant fields that are completely mapped, there is absolutely no exploration cost and no risk. So the argument that these agreements are needed to hedge risk is specious.''
One point on which all agree, however, is that only small, maverick oil companies are likely to risk any activity in Iraq in the foreseeable future. ``Production over the next year in Iraq is probably going to fall rather than go up,'' said Kevin Norrish, an oil analyst from Barclays. ``The whole thing is held together by a shoestring; it's desperate.''
An oil industry executive agreed, saying: ``All the majors will be in Iraq , but they won't start work for years. Even Lukoil , the Chinese and Total are not in a rush to endanger themselves. It's now very hard for U.S. and allied companies because of the disastrous war.''
Mr. Muttitt echoed warnings that un fa vour able deals done now could unravel a few years down the line, just when Iraq might become peaceful enough for development of its oil resources to become attractive. The seeds could be sown for a future struggle over natural resources which has led to decades of suspicion of Western motives in countries such as Iran.
Iraqi trade union leaders who met recently in Jordan suggested that the legislation would cause uproar once its terms became known among ordinary Iraqis.
``The Iraqi people refuse to allow the future of their oil to be decided behind closed doors,'' their statement said. ``The occupier seeks and wishes to secure ..... energy resources at a time when the
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Iraqi people are seeking to determine their own future, while still under conditions of occupation.''
The resentment implied in their words is ominous, and not only for oil company executives in London or Houston. The perception that Iraq's wealth is being carved up among foreigners can only add further fuel to the flames of the insurgency, defeating the purpose of sending more American troops to a country already described in a U.S. intelligence report as a cause céle 2bre for terrorism.
AMERICA PROTECTS ITS FUEL SUPPLIES--AND CONTRACTS
Despite U.S. and British denials that oil was a war aim, American troops were detailed to secure oil facilities as they fought their way to Baghdad in 2003. And while former defence secretary Donald Rumsfeld shrugged off the orgy of looting after the fall of Saddam's statue in Baghdad, the Oil Ministry--alone of all the seats of power in the Iraqi capital--was under American guard.
Halliburton, the firm that Dick Cheney used to run, was among U.S.-based multinationals that won most of the reconstruction deals--one of its workers is pictured, tackling an oil fire. British firms won some contracts, mainly in security. But constant violence has crippled rebuilding operations. Bechtel, another U.S. giant, has pulled out, saying it could not make a profit on work in Iraq .
IN JUST 40 PAGES, IRAQ IS LOCKED INTO SHARING ITS OIL WITH FOREIGN INVESTORS FOR THE NEXT 30 YEARS
A 40-page document leaked to the `IoS' sets out the legal framework for the Iraqi government to sign production -sharing agreement contracts with foreign companies to develop its vast oil reserves.
The paper lays the groundwork for profit-sharing partnerships between the Iraqi government and international oil companies. It also lays out the basis for co-operation between Iraq's federal government and its regional authorities to develop oil fields.
The document adds that oil companies will enjoy contracts to extract Iraqi oil for up to 30 years, and stresses that Iraq needs foreign investment for the ``quick and substantial funding of reconstruction and modernisation projects''.
It concludes that the proposed hydrocarbon law is of ``great importance to the whole nation as well as to all investors in the sector'' and that the proceeds from foreign investment in Iraq's oilfields would, in the long term, decrease dependence on oil and gas revenues.
THE ROLE OF OIL IN IRAQ'S FORTUNES
Iraq has 115 billion barrels of known oil reserves--10 per cent of the world total. There are 71 discovered oilfields, of which only 24 have been developed. Oil accounts for 70 per cent of Iraq's GDP and 95 per cent of government revenue. Iraq's oil would be recovered under a production -sharing agreement (PSA) with the private sector. These are used in only 12 per cent of world oil reserves and apply in none of the other major Middle Eastern oil-producing countries. In some countries such as Russia, where they were
igned at a time of political upheaval, politicians are now regretting them.
THE $50BN BONANZA FOR U.S. COMPANIES PIECING A BROKEN IRAQ TOGETHER
The task of rebuilding a shattered Iraq has gone mainly to U.S. companies.
As well as contractors to restore the infrastructure, such as its water, electricity and gas networks, a huge number of companies have found lucrative work supporting the ongoing coalition military presence in the country. Other companies have won contracts to restore Iraq's media; its schools and hospitals; its financial services industry; and, of course, its oil industry.
In May 2003, the Coalition Provisional Authority (CPA), part of the U.S. Department of Defence, created the Project Management Office in Baghdad to oversee Iraq's reconstruction.
In June 2004 the CPA was dissolved and the Iraqi interim government took power. But the U.S. maintained its grip on allocating contracts to private companies. The management of reconstruction projects was transferred to the Iraq Reconstruction and Management Office, a division of the U.S. Department of State, and the Project and Contracting Office, in the Department of Defence.
The largest beneficiary of reconstruction work in Iraq has been KBR (Kellogg, Brown & Root), a division of U.S. giant Halliburton, which to date has secured contracts in Iraq worth $13bn ( u7bn), including an uncontested $7bn contract to rebuild Iraq's oil infrastructure. Other companies benefiting from Iraq contracts include Bechtel, the giant U.S. conglomerate, BearingPoint, the consultant group that advised on the drawing up of Iraq's new oil legislation, and General Electric. According to the U.S.-based Centre for Public Integrity, 150-plus U.S. companies have won contracts in Iraq worth over $50bn.
30,000--Number of Kellogg, Brown and Root employees in Iraq .
36--The number of interrogators employed by Caci, a U.S. company, that have worked in the Abu Ghraib prison since August 2003.
$12.1bn--UN's estimate of the cost of rebuilding Iraq's electricity network.
$2 trillion--Estimated cost of the Iraq war to the U.S., according to the Nobel prize-winning economist Joseph Stiglitz...
Part I:
http://www.thomas.gov/cgi-bin/query/F?r110:1:./temp/~r110mrjof7:e0:
Part II:
http://www.thomas.gov/cgi-bin/query/F?r110:1:./temp/~r110mrjof7:e2552:
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