Wednesday, August 15, 2012

Did The U.S. Plan On Privatizing Iraq’s Oil After The 2003 Invasion?

A widely held belief is that the United States went to war with Iraq for oil. One variation of this argument is that America wanted to open up Iraq’s oil industry since it had been nationalized in the 1970s, and cut off from the world by over a decade of international sanctions. While there was talk within the White House and think tanks to have foreign oil companies move in after the fall of Saddam Hussein it didn’t happen right away. When the U.S. had its chance to privatize the energy sector under the Coalition Provisional Authority (CPA) it decided not to, because of the possible negative affects that would have upon Iraqi and world opinion, and due to international law. If the United States did not open Iraq’s oil to foreign investment when it had control of the country, it undermines the argument that was a goal of the Bush administration.

Before the 2003 invasion of Iraq, there was some talk about taking advantage of the country’s oil after the fall of Saddam Hussein. In 2002 for instance, the Heritage Foundation argued that the U.S. should open Iraq’s oil to foreign investment. One analyst from that think tank believed that the increased petroleum production that would ensue from major petroleum companies entering Iraq could break the hold of OPEC over the world energy market. That idea was popular amongst some neoconservatives within the administration as well. The State Department’s Future of Iraq Project also brought up privatization, arguing that the state-run system was hindering Iraq’s potential. Elliott Abrams, the Senior Director for Near East and North African Affairs at the National Security Council suggested that the U.S. actually take over the oil industry after the war. In the end, President Bush announced that Iraqi oil would be used for the benefit of the country just before the invasion started in March 2003. Administration officials said that meant petroleum revenue would be used to help rebuild the country. In the end, it appeared that the White House had discussions about what to do about Iraq’s oil, and outside think tanks made their own suggestions as well, but that the only real decision made was that petroleum would help finance reconstruction. That would not be surprising since pre-war planning by the administration was so uncoordinated and ad hoc in nature that it overlooked many important issues the U.S. would be faced with after the invasion.

In April 2003, the Coalition Provisional Authority (CPA) was given control of Iraq, and got down to the business of deciding the fate of Iraq’s oil industry. Initially, the CPA’s first priority was to repair the damage done to the oil infrastructure by the war and the looting that took place afterward, so that exports could resume, and the country could begin to start earning money again for its huge reconstruction needs. Then in May, Philip Carroll, the former CEO of Shell, was appointed to head an advisory board to the Iraqi Oil Ministry. He came in saying that he would not support the privatization of the industry. He told the press that petroleum was such a part of Iraq’s national identity that to privatize it would be an affront to the country. He conveyed that message to the head of the CPA Paul Bremer. CPA officials shared his concern, and were also unwilling to make any major changes to the industry out of fear that it would fuel charges that the war was about oil. In September, these ideas were put into law with Coalition Provisional Authority Order Number 39. It was meant to encourage foreign investment in Iraq, but barred that from happening in natural resources. This was in line with international law, which prohibits occupying powers from giving oil concessions. As a result, petroleum remained a nationalized industry. The CPA ran Iraq for fourteen months. If the goal of the United States was to open up Iraq’s natural resource to foreign corporations there would have been no better time to do it than during the CPA period. Instead, the Coalition kept oil under government control. Some have argued that the U.S. was waiting for the Iraqis to pass their own oil law after the Authority ended its mandate, but that has not happened either, because of political disputes. Instead the Oil Ministry has gone ahead, and held several auctions for oil and gas fields offering service contracts that restrict profits for corporations, while the Kurdistan Regional Government has followed an independent policy. In both cases however, the government remains the manager of the country’s resources.

The argument that the 2003 invasion was about controlling Iraq’s oil appears to be a compelling one, but falters when compared to what actually happened. There were definitely talks both within and without the Bush administration that the U.S. should take advantage of Iraq’s great oil wealth. Ideas were thrown about to privatize the industry, and allow foreign companies to move in. No real decision appeared to be made before the invasion started however. When the Coalition Provisional Authority was created to govern Iraq it decided to maintain petroleum as a nationalized business. While Iraq has tried to shape oil policy since then, it has largely let the Iraqis determine their own policy. That's why when major international firms finally returned to Iraq in numbers in 2009, they signed contracts that greatly favored the government. Then Oil Minister Hussein Shahristani wanted to make sure that the country retained as much of its wealth as possible, and was largely successful. The result is that today, Iraq’s energy sector continues to be part of the state-run economy. . 


Banerjee, Neela, “An American and 2 Iraqis to Assume Key Oil Posts,” New York Times, 5/3/03

Coalition Provisional Authority, “Coalition Provisional Authority Order Number 39 Foreign Investment,” 9/19/03

Crum, Nicole Marie, “Liberalization or Economic Colonization: The Legality of the Coalition Provisional Authority’s Structural Investment Law Reforms in Post-Conflict Iraq,” South Carolina Journal of International Law and Business, Fall 2006

International Law Office, “Energy & Natural Resources – Iraq,” 4/19/04

Khadduri, Walid, “The Iraqi Oil Industry: A Look Ahead,” Middle East Economic Survey, 11/29/04

Mahdi, Kamil, “Iraq’s Oil Law: Parsing the Find Print,” World Policy Journal, 2007

McGeary, Johanna, “Looking Beyond Saddam,” Time, 3/10/03

News World Communications, “Iraqi Oil Strategy Divides State, White House,” 12/28/02

Observer, “Carve-up of oil riches begins,” 11/3/02

Palast, Greg, “Secret US plans for Iraq’s oil,” BBC, 3/17/05

Special Inspector General for Iraq Reconstruction, “Hard Lessons,” 1/22/09


Seerwan said...

It was doubtless there were certain factions of the Bush administration (the neocons in the Defense Dept; Wolfowitz, Rumsfeld, Bolton, et al.) who approach everything, including the global oil industry, from a purely right-wing free market perspective and who have no background, knowledge or understanding of foreign histories and cultures.
After 9/11, they were overconfident in the ability of US military power and were naive in believing democracy has a miraculous ability to develop countries.
They used 9/11 as an excuse to militarily change Middle Eastern regimes they viewed as inimical to US and thereby (from the neocon perspective) global interests; beginning with Saddam. They believed that democracy was better for both US interests and the interests of the native populations.

Part of the necon world-view was Middle Eastern oil states, in keeping their oil industries nationalized, were keeping the global oil industry shackled in the inefficiencies of the public sector. These regimes kept oil prices high, channeled oil revenues into placating their populations from rising against them via welfare states and inhibiting democracy.
Furthermore these regimes channeled frustrated youth into religion, a minority of whom become militant jihadis who hate the west.

The neocons attempted to rectify the situation by remaking the world order via the Middle East via their oil industries and their systems of governance (i.e. regimes).

While they did not invade Iraq for the *sole* reason of privatizing Iraq’s oil, it was a significant part of their motivation (though they did not intend to return to the 1920s-1960s where Western-owned Oil corporations pocketed the overwhelming majority of oil revenues of non-western countries).

Now, in regards to Iraq under the CPA, I recall reading in "Oil and Democracy in Iraq" by Robert Springborg that Bremer, his world view based on American right-wing, free market ideology, wanted to privatize Iraq's oil industry.
According to his free market beliefs, it would unshackle the CPA (and thereafter the Iraqi Govt) from the inefficiencies of public control; IOCs would quickly revamp infrastructure and increase output, allowing CPA/Iraq Govt to focus on rebuilding Iraq from oil revenues that would flow.
Of course, Bremer was chosen by Rumsfeld to head the CPA because he had no background in the international oil industry or the Middle East, and had no understanding of the historical context of Iraq and how it was utterly politically untenable for a foreign power to privatize a nationalized natural resource industry (especially one like Iraq's oil).
Springborg says it was Philip Carroll (formerly Shell CEO) who told Bremer flat out privatizing Iraq’s oil industry would not happen under Carroll's tenure as head of the Oil board (though he was appointed by the CPA), scuttling Bremer’s intention.

After the 2004 transition of sovereignty to Iraq and the 2005 elections, the Bush administration, filled with neocons, continued to lobby Iraqi Govts to privatize the oil industry as they believed it would be more efficient for Iraq and the global oil industry for oil prices and quantities to be determined by the free market.
However, Iraqi Govts have consistently ignored the Bush-era lobbying because as Iraqis they firstly know it is politically untenable to privatize the industry and secondly do not share the US neocon economic ideological perspective that the privatizing sector is more efficient than the public sector (or that even IF the private sector were more efficient, being marginally less efficient is an acceptable cost for keeping such valuable resources in the control of the national government in the public and national interest).

These right-wing (and overwhelmingly WASP) neocon Americans simply do not understand the role natural resources (especially oil in the Middle East) play in the history of third world states, and their association with imperialism, colonialism and western exploitation.

Joel Wing said...


Couple responses.

1st the neoconservatives and the Bush administration in general were not a monolithic group and had many different opinions. Wolfowitz for example only seemed to consider oil in the context of helping with reconstruction costs. Cheney who was not a neoconservative did have talks about privatizing the oil industry. Like I wrote I can't find any evidence that any actual plans were made for Iraq's oil industry pre-2003 other than to prepare for possible field fires.

As for Bremer and some CPA officials they definitely thought Iraq's economy should be privatized and used Eastern Europe after the fall of the Iron Curtain as an example. That being said I have not found evidence that Bremer wanted to do that with oil given its important role in Iraqi society. Likewise, I haven't found evidence that the White House pushed privatization either. In fact, I've heard the opposite.

Joel Wing said...

Seewan forgot to add that the CPA couldn't privatize the oil industry even if wanted to because it would have been illegal under international law, something that State Department determined decades before for all occupational powers.

Seerwan said...

I see. Thanks Joel.

As I said, I recall reading in Springborg that Bremer brought it up with Philip Carroll, who explained to him it is not possible.

I suppose the legal barrier you mention also played a role in convincing the CPA to drop the issue.

P.S. I'd check the source Springborg cites, but the book is back home (in the UAE). All I can gather from google books:
Will let you know when I next see the book.

Joel Wing said...

Seewan thanks for the source. Have not seen that book before. Is first I've seen Bremer talking about privatizing oil.