Greg Palast: Yes, Iraq was about the oil . . . but not the way you think

It was done to drive the price of oil down. But it was also done to keep the price of oil up. But mainly it was done to keep the price of oil stable. Confused? Read on.

Investigative journalist Greg Palast (an American expat now working for the BBC – and, incidentally, a classmate of Paul Wolfowitz, Richard Perle and Ahmed Chalabi at the University of Chicago in the '60s, where he studied economics under Arthur Laffer and Milton Friedman) has a new book out: Armed Madhouse. It covers a lot of ground, but for this thread I want to focus on Chapter 2, “The Flow,” about the Iraq invasion.

“Plan A:”

In February 2001, a meeting organized by Colin Powell’s State Department was held in Walnut Creek, California, in the home of Falah Aljibury, an Iraqi-born consultant on Iraq’s oil industry. The “Three-Day Plan” they came up with was “an invasion disguised as a coup,” “kind of a Marine-supported Bay of Pigs.” Saddam was to be replaced by some Ba’athist general cashiered by him, possibly the exiled General Nizar Khazraji – “the secret group was already contacting Saddam’s generals to switch allegiance. Then, according to their playbook, there would be snap elections, say within 90 days, to put a democratic halo on our chosen generalissimo.”

“Plan B:”

But in November 2001, following the U.S. victory in Afghanistan, the Pentagon, dominated by neoconservative PNAC members Donald Rumsfeld, Paul Wolfowitz and Elliot Abrams, had other and very different ideas:

But it goes deeper than that: The core of the neocons’ plan was to use Iraq to break the back of OPEC! Privatize the state-owned oilfields among several small companies, let them compete with each other, and they’ll up production and drive down the price of oil and even Saudi Arabia will have to follow suit! That idea was Ari Cohen’s baby, and he called it a “no-brainer.”

After the invasion, the first American viceroy was General Jay Garner, who was committed to neither plan but inclined strongly towards Plan A. His own view was that Iraq’s value to the U.S. was as a “coaling station,” a base for projection of American power in the MENA as needed, the role the Philippines once played in the South Pacific. As for the oil, that would be left to the Iraqis to decide. Garner wasn’t much committed to democracy in Iraq, for its own sake, but regarded it as an urgent practical necessity:

All that was unacceptable to the Pentagon neocons. Rumsfeld fired Garner on 4/21/03 and replaced him with Paul Bremer, who put off elections indefinitely – even municipal elections – while proceeding to implement almost every economic and legal element of Plan B by his own fiat. Order 37: Flat tax on corporations, individual income tax capped at 15%. Order 40: Iraqi banks sold off to three foreign financiers with no bidding process. Order 12: Iraq to become the only country on Earth with no tariff barriers or import quotas at all. Iraqi industry, limping along after 12 years of sanctions, was shattered by this. Agriculture too; Cargill flooded Iraq’s market with wheat, driving Iraqi farmers out of business. And “Order 100 ensures that, “the interim government and all subsequent Iraqi goverments inherit full responsibility for these [Bremer’s] laws, regulations, orders, memoranda, instructions and directives,” which effectively locks in the economic rules of occupation.”

Hussein’s prohibition on public-sector labor union activity, however, remained in place; 12/03, Bremer arrrested the entire board of the Iraqi Workers Federation of Trade Unions.

While this was going on several billion dollars in Iraqi oil revenue and U.S. reconstruction funds simply disappeared, but investigation is hampered by the Coalition Provisional Authority having been, according to some lawyers, neither an Iraqi nor a U.S. government agency – and later on, it was dissolved. “The perfect getaway car – one that simply disappears.” In fact, some lawyers argue the CPA never had any legal existence in the first place, so there. (See this thread and this one.)

Every element of Plan B was implemented, except privatizing the oil industry. There were two big problems with that plan that had somehow escaped the notice of the neocon ideologues:

  1. Saudi Arabia won’t allow OPEC to be broken, and has the power to stop it. As Nawaf Obaid, a Saudi-born economist, think-tanker and member of the Saudi National Security Assessment Project, explained it to Palast:
  1. The international oil companies don’t want OPEC busted.

The five big international oil companies own some oilfields of their own, but they have to buy most of the oil they refine from the nationalized oil industries of the OPEC nations. You might think they would want to buy it as cheap as they can, so they can pocket the difference, or else charge less at the pump and sell a lot more gasoline, but it’s not that simple:

Maintaining the status quo for the oil companies requires holding down oil production, and Iraq has been assigned that sorry role since it was founded (it has 74 known oil fields and only 15 in production). In 1927, the major oil company execs met at a hotel room in Belgium and signed an agreement: The Anglo-Persian company (now British Petroleum) would pump almost all its oil from Iran; Standard Oil, under the name of the Arabian-American Oil Company (Aramco), would limit almost all its drilling to Saudi Arabia; Anglo-Persian would drill in Iraq’s Kirkuk and Basra fields but it would drill very little.

In the early '60s, the frustrated Iraqi government canceled the BP-Shell-Exxon concession and nationalized the oil fields, but that didn’t solve the problem.

When Hussein invaded Kuwait in 1990, he was hoping to increase Iraq’s OPEC production quota by adding Kuwait’s to it.

So why did Hussein – a secular Ba’athist, no sponsor of Islamist terrorism, possessing no WMDs, contained as a military threat, yet arguably still useful as a counterbalance to Iran – why did Hussein, finally, have to go?

But neither could zealous neocon ideologues be allowed to upset the oil companies’ apple cart. In May 2003, Phillip Carroll, former CEO of Shell Oil USA, former CEO of Fluor corporation, flew to Baghdad and confronted Bremer. Palast interviewed Carroll in March 2005 and got the story:

Top global oil execs, including no Iraqis, met in Houston, 11-12/03, and drafted a 323-page plan, Options for a Sustainable Iraqi Oil Industry. Iraqis were to be offered seven options, all essentially the same: “seven flavors of state-owned oil companies.” Privatization was not an option.

Ahmed Chalabi, a University of Chicago-educated neocon who fully supported the privatization plan and whom the neocons intended for Iraq’s new president, was purged, and sought for arrest on espionage charges. His “governing council” was replaced by a new government headed by a Ba’athist blessed by the State Department. Bremer was booted out and the new Ambassador John Negroponte arrived to represent the U.S. in Iraq.

But it’s not over yet. In February 2005 there was another shift in power, Negroponte was replaced by PNAC favorite Zalmay Khalizad, and Chalabi returned to power with the Shi’ites and became temporary oil minister. He fired Big Oil’s favorites in the ministry – but still did not dare try to privatize.

Where was W in all this? Who knows? But it appears both the Plan A and the Plan B team enjoyed the support of Cheney.

So there you have it. Why the U.S. invaded Iraq, and why we fucked it up: We went in with three incompatible agendas: Plan A, Plan B, and the stated aim of establishing a democratic government – a promise that had to be honored in some form eventually, and was, with utterly disastrous results. With all that jerking back and forth, plus all that venality and corruption, plus the intractable political, religious and ethnic divisions among the Iraqi people themselves, how was it to be expected any good would come of it? Maybe if Garner had been allowed to do it his way, the situation could have been saved, but it’s too late now.

And that’s why American troops are still in Iraq and still killing and still getting killed. And that’s why the Iraqi people are still suffering from high unemployment, destroyed infrastructure, and insurgent violence.

And that’s why we’re still paying almost $3.00/gallon for gas at the pump.

Anyone still think it was a good idea?

BG, the people who THOUGHT it was a good idea in the first place will simply refuse to comprehend any of this. You will receive no intelligent replies from any of them. To them, it was about Weapons of Mass Destruction and Liberating the Iraqi People and only later Fighting the War On Terror. None of what you’ve recounted here happened, in their worldview; the U.S. administration has been steady on the same path the whole time with finding WMD, liberating Iraqis, and fighting terror.

Chalibi won some skirmishes: apparently he convinced Cheney to order the disbanding of the Iraqi Army, in Spring 2003, thereby giving the insurgency a couple of hundred thousand armed recruits.

I confess I’m a little skeptical about putting everything at the foot of Big Oil. That they persuaded our blinkered policy makers that oil privitization would be a bad idea sounds plausible though, given the outrage that would follow if Exxon purchased Iraqi oil fields at auction.

BTW: Here’s Palast’s BBC article from Mar 2005:
http://news.bbc.co.uk/2/hi/programmes/newsnight/4354269.stm

Mr. Palast seems almost too well-informed. That gives me a slight tilt towards skepticism, but no more than that. You mention that he was a classmate of Perle, Wolfowitz and Chalabi…does he state or hint at any special access due to his acquaintance with these…sterling characters?

And while I have no doubt that Big Oil has far too loud a voice in the Whorehouses of Power, might we not overestimate that power? Oil greed might account for the motivations of the cheerleaders without necessarily revealing anything about the deciders.

For my two bits, I think GeeDubya did think he was saving America from the Saddamites and their nuclear anthrax armed invisible unicorns of death. He believed it because he wanted to believe it, accepting whatever meagre intelligence supported his case and brushing facts aside that proved inconvenient.

Lord Acton, yes? Something about never underestimating the significance of stupidity in human history.

Not really, no. How he got his information is explained in great detail in the book (although he does not disclose the names of anonymous sources). E.g., the State Department denied the existence of the oil companies’ plan for Iraq’s oil, until Palast cozened the title out of Amy Jaffe of James Baker’s think tank in Houston. Confronted with a demand for a document titled Options for a Sustainable Iraqi Oil Industry, the State Department had no choice but to hand over a copy.

Even richer is the story of how Palast aquired confidential White House communications about the plan to use “caging lists” to suppress the Dem vote in 2004 election. He didn’t have to break into any offices to get them. They dropped into the lap of Web prankster John A. Wooden, who has a site with the url GeorgeWBush.org. Some careless White House staffer cc’d certain e-mails to that address by mistake (W’s actuall e-mail address being GeorgeWBush.com.)

BTW, here’s a fairly favorable review of Palast’s book from a British source:

Well, that’s the point: The war happened because Big Oil and the State Department foreign-policy-realists and the Pentagon neocons wanted it – but for different and in one important respect (what to do with/about Iraq’s oil) flatly incompatible reasons. Big Oil wanted to stop Hussein from driving the oil market crazy. The State Department wanted to remove Hussein as a complicating factor in international relations but maintain the status quo otherwise. The neocons wanted to use Iraq to spearhead a global free-market, business-friendly revolution and destroy the power of OPEC in international affairs.

I’m sure W’s suppressed-cowboy personality, religiosity, and Manichean good-vs.-evil worldview also made him more receptive to the idea, but he needed someone else to whisper it in his ear; and he probably got that, from all sides, and then convinced himself he was actually hearing it from God.

That was the part that rang false to me.

Futures and options markets can easily hedge price risk over 1 year horizons. And over longer periods, Saddam lacked the power to engineer a price collapse. I simply can’t see how Saddam complicated the lives of the oil majors to any great extent.

Nonetheless, oil companies would have opinions regarding the Iraqi Oil Ministry, which they would be happy to share with sympathetic ears.

ALSO:
Let’s not forget that the Bush admin spurned those with expertise in post-war reconstruction and staffed the Provisional Coalition Authority with amateurs culled from a Heritage Foundation rolodex. I see ample evidence of poor planning, nonplanning and modern conservative wishful thinking.

Well, that’s the thing about the neocons. By and large, with a few exceptions, they are not experienced administrators, nor politicians, nor diplomats, nor military officers, nor business executives. Throughout their existence as a movement they’ve been ideologues, academics, journalists/commentators, think-tankers and policy analysts. This was their very first chance to actually run something. It would be astonishing if they didn’t fuck it up.

The thought that they might fuck it up again next time is, IMO, far less frightening than the thought that they might get good at it.

Cite? I always thought the oil market was a rather volatile one.

http://www.eia.doe.gov/pub/oil_gas/petroleum/analysis_publications/oil_market_basics/price_transactions.htm

is a fairly useful explanation of how oil is traded. Note the comments that significant ammount of oil is traded under contract which will vary with the spot price but is would have a lower volatility.

The futures market is used to hedge out risks, the spot market is the price of the last bbl of oil.

Oil produced is sold mostly under a slowly adjusting contract price. Before heading into a major development you need to have a market and and an agreed sell price otherwise it is rather hard to get financing for the development. Gas developments are the most rigid example of this. Contracts are set up between supplier and consumer (gas power station for example) to deliver x amount at price y for z number of years. If either sie defaults on production or acceptance large penalties ensue. Zero volatility for supplier or producer regardless of what the Hunry Hub price is today. Supply arrangements for oil deliveries to refineries follow a similar pattern, with the allowed adjustments to the spot market.

The refiner buying the oil will buy at the arranged contract price and has protected himself against price increases, however if he so choses he can go the the futures market and take an option to sell the oil on at a similar price and then if the price drops, buy oil at a lower price from the spot market and pocket the difference. Plenty of trading goes on on teh post and futures market wby institutions who have no intention of ever taking deliver of a drop of oil.

So in all of that what I am trying to say is - spot price is volatile but is not the complete story and longer term stable contract prices are what drive investment for major projects ( 100 million dollar and up range approx)
Smaller developments (small operaors typically in US land operations) who can crank uopand down lwo cost low producing wells qucikly will sell into the spot market, and their activity is as volatile as the spot market.
Hopefuly the refered page backs some of that up.
cheers