Blood and oil: The hidden cost of an occupied Iraq

As the American casualties surpasses the 3,000 mark, many of us wonder, "what do the US and its allies have to gain from this bloodbath?" Is the occupation of Iraq really worth the lives of countless Americans, many of whom will not even get a chance to say goodbye to their loved ones? With the announcement of a troop increase by the Bush Administration imminent, one could only wonder what that hell are we doing there in Iraq when the "major combat operations" were accomplished since May 2003?

Since post-9/11, the Bush Administration has said many times that the purpose of ousting Saddam is for the liberation of Iraqis, many of whom were severely oppressed under his terrible regime. The administration hardly ever mentions its true intent, including but not excluded to, the control of Iraq's oil reserves (which ranks 3rd internationally amongst all of the "conventional oil" producing countries), exploitation of Iraqis, "Westernization" of Iraq, and, ultimately, the reconstruction of a US-friendly Iraq, including the establishment of a pro-Western government and infrastructure through numerous US-assisted projects, training of its military, and the invasion by US commerce, industry and ideology. Some of these "hidden" intentions were only recently uncovered by the international press. While most issues are upfront and obvious, those who continuously criticize the US foreign policy are quickly stifled, and never to be mentioned in the "mainstream" US media. This is particularly true on the control of the most vital resource known to Man - the petroleum.

The 3-year long US involvement in the Iraq war is soon to be paid off. Fortunately, for the 1% of the Americans and their allies, this payment will be in the form of a perpetual contract to extract this vital, non-renewable resource. The Independent reported recently:

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 [US and its allies around the] world [from] 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 US 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 US 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."

Furthermore:

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 are 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 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.

And, more:

It is also understood that once companies have recouped their costs from developing the oil field, they are allowed to keep 20 per cent 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 per cent of the profits in a production sharing agreement, once all the costs have been recouped, is a large amount." In more stable countries, 10 per cent would be the norm.

While the costs are being recovered, companies will be able to recoup 60 to 70 per cent of revenue; 40 per cent 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 per cent of the profits in a production sharing agreement once all the costs have been recouped is large".

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.

And, additionally:

"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 US 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 US 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, [and] there is absolutely no exploration cost and no risk. So the argument that these agreements are needed to hedge risk is specious."

Mr Muttitt echoed warnings that unfavourable 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 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 US intelligence report as a cause célèbre for terrorism.

So, is the US invasion really for the benefit of ordinary Iraqi citizens? Or, is it to quench the forever thirsty multinationals of the petroleum business? Is the US invasion really a ploy to oust Saddam? Or, is it to guarantee the "national security" of a global hegemony?

With the Persian Gulf becoming increasingly more volatile, it is in the best interest of both the US and its client states to secure significant petroleum reserves at all costs. Especially, with the stagnate US economy, ongoing dollar depreciation, the rise of crude, and many more ferocious competition from economic-giant like China and India, the influx of cheap oil would be the only temporary solution to reverse this downward spiral. Furthermore, when you have a government which spent close to $500 billion dollar on military budget last year, this seems to be the only viable solution!

With the fast-vanishing crude, the future of the Middle East is no longer controlled by its inhabitants, rather it is controlled by pirates and dictators with the cohesive intention to fine-tune the politics of the Middle East.