Is It Oil?
The Issue Revisited
This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org
This article is from the
March/April 2017 issue.
at a 30% discount.
Around the time that the United States invaded Iraq, 14 years ago, I was in an auditorium at the University of Massachusetts Boston to hear then-Senator John Kerry try to justify the action. As he got into his speech, a loud, slow, calm voice came from the back of the room: “O – I – L.” Kerry tried to ignore the comment. But, again and again, “O – I – L.” Kerry simply went on with his prepared speech. The speaker from the back of the room did not continue long, but he had succeeded in determining the tenor of the day.
Looking back on U.S. involvement in the Iraq, it appears to have been largely a failure. Iraq, it turned out, had no “weapons of mass destruction,” but this original rationalization for invasion offered by the U.S. government was soon replaced by the goal of “regime change” and the creation of a “democratic Iraq.” The regime was changed, and Iraqi dictator Saddam Hussain was captured and executed. But it would be very had to claim that a democratic Iraq either exists or is in the making—to say nothing of the rise of the so-called Islamic State (ISIS) and the general destabilization in the Middle East, both of which the U.S. invasion of Iraq helped propel.
Yet, perhaps on another scale, the invasion would register as at least a partial success. This is the scale of O – I – L.
The Profits from Oil
At the time of the U.S. invasion, I wrote an article for Dollars & Sense titled “Is It Oil?” (available online here). I argued that, while the invasion may have had multiple motives, oil—or more precisely, profit from oil—was an important factor. Iraq, then and now, has huge proven oil reserves, not in the same league as Saudi Arabia, but in group of oil producing countries just behind the Saudis. It might appear, then, that the United States wanted access to Iraqi oil in order to meet the needs of our highly oil-dependent lifestyles in this country. After all, the United States today, with just over 4% of the world’s population, accounts for 20% of the world’s annual oil use; China, with around 20% of the world’s population is a distant second in global oil use, at 13%. Even after opening new reserves in recent years, U.S. proven reserves amount to only 3% of the world total.
Except in extreme circumstances, however, access to oil is not a major problem for this county. And it was not in 2003. As I pointed out back then, the United States bought 284 million barrels of oil from Iraq in 2001, about 7% of U.S. imports, even while the two countries were in a virtual state of war. In 2015, only 30% as much oil came to the United States from Iraq, amounting to just 2.4% of total U.S. oil imports. Further, in 2015, while the United States has had extremely hostile relations with Venezuela, 24% of U.S. oil imports came from that country’s nationalized oil industry. It would seem that, in the realm of commerce, bad political relations between buyers and sellers are not necessarily an obstacle.
For the U.S. government, the Iraq oil problem was not so much access, in the sense of meeting U.S. oil needs, as the fact that U.S. firms had been frozen out of Iraq since the country’s oil industry was nationalized in 1972. They and the other oil “majors” based in U.S.-allied countries were not getting a share of the profits that were generated from the exploitation of Iraqi oil. Profits from oil exploitation come not only to the oil companies—ExxonMobil, Shell, Chevron, British Petroleum, and the other industry “majors”—but also to the companies that supply and operate equipment, drill wells, and provide other services that bring the oil out of the ground and to consumers around the world—for example, the U.S. firms Halliburton, Emerson, Baker Hughes, and others. They were also not getting a share of the Iraqi oil action. (Actually, when vice president to be Dick Cheney was running Halliburton, in the period before the invasion, the company managed to undertake some operations in Iraq through a subsidiary, in spite of federal restrictions preventing U.S. firms from doing business in Iraq.)
After the Troops
In the aftermath of the invasion and since most U.S. troops have been withdrawn, things have changed. “Prior to the 2003 invasion and occupation of Iraq, U.S. and other western oil companies were all but completely shut out of Iraq’s oil market,” oil industry analyst Antonia Juhasz told Al Jazeera in 2012. “But thanks to the invasion and occupation, the companies are now back inside Iraq and producing oil there for the first time since being forced out of the country in 1973.”
From the perspective of U.S. firms the picture is mixed. Firms based in Russia and China have developed operations in Iraq, and even an Indonesian-based firm is involved. Still, ExxonMobil (see box) has established a significant stake in Iraq, having obtained leases on approximately 900,000 onshore acres and by the end of 2013 had developed several wells in Iraq’s West Qurna field. Exxon also has agreements with the Kurdistan Regional Government in northern Iraq to explore for oil. Chevron holds an 80% stake and is the operator of the Qara Dagh block in the Kurdistan region of Iraq, but as of mid-2014 the project was still in the exploratory phase and there was no production. No other U.S. oil companies have developed operations in Iraq. The UK-headquartered BP (formerly British Petroleum) and the Netherlands-headquartered Shell, however, are also significantly engaged in Iraq.
While data are limited on the operations of U.S. and other oil service firms in Iraq, they seem to have done well. For example, according to a 2011 New York Times article:
The oil services companies Halliburton, Baker Hughes, Weatherford International [founded in Texas, now incorporated in Switzerland] and Schlumberger [based in France] already won lucrative drilling subcontracts and are likely to bid on many more. “Iraq is a huge opportunity for contractors,” Alex Munton, a Middle East analyst for Wood Mackenzie, a research and consulting firm based in Edinburgh, said by telephone. “There will be an enormous scale of investment.”
The Right to Access
While U.S. oil companies and oil service firms—as well as firms from other countries—are engaged in Iraq, they and their U.S. government supporters have not gained the full legal rights they would desire. In 2007, the U.S. government pressed the Iraqi government to pass the “Iraq Hydrocarbons Law.” The law would, among other things, take the majority of Iraqi oil out of the hands of the Iraqi government and assure the right of foreign firms to control much of the oil for decades to come. The law, however, has never been enacted, first due to general opposition to a reversal the 1972 nationalization of the industry, and recently due to continuing disputes between the government in Baghdad and the government of the Kurdistan Region in northern Iraq.
U.S. foreign policy, as I elaborated in the 2003 article, has long been designed not simply to protect U.S.-based firms in their international operations, but to establish the right of the firms to access and security wherever around the world. Oil firms have been especially important in promoting and gaining from this right, but firms from finance to pharmaceuticals and many others have been beneficiaries and promoters of the policy.
Whatever else, as the Iraq and Middle East experience has demonstrated, this right comes at a high cost. The best estimate of the financial cost to the United States of the war in Iraq is $3 trillion. Between the 2003 invasion and early 2017, U.S. military forces suffered 4,505 fatalities in the war, and allied forces another 321. And, of course, most of all Iraqi deaths: estimates of the number of Iraqis killed range between 200,000 and 500,000.