FUTURE OF OIL

Blood and oil: How the West will profit from Iraq's most precious commodity

noreply@blogger.com (Unknown) — Thu, 17 Jul 2008 13:01:00 +0000

The 'IoS' today reveals a draft for a new law that would give Western oil companies a massive share in the third largest reserves in the world. To the victors, the oil? That is how some experts view this unprecedented arrangement with a major Middle East oil producer that guarantees investors huge profits for the next 30 years

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 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."

Britain and the US 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 US 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 US 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 US 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 élite 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 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.

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.

"A Foreign Person may repatriate its exports proceeds [in accordance with the foreign exchange regulations in force at the time]." 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 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".

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 per cent 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 per cent 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 non government 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 $1bn 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 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."

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 [of Russia], the Chinese and Total [of France] are not in a rush to endanger themselves. It's now very hard for US and allied companies because of the disastrous war."

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.

America protects its fuel supplies - and contracts

Despite US 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 US-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 US 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 signed at a time of political upheaval, politicians are now regretting them.

The $50bn bonanza for US companies piecing a broken Iraq together

The task of rebuilding a shattered Iraq has gone mainly to US 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 US 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 US 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 US 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 US giant Halliburton, which to date has secured contracts in Iraq worth $13bn (£7bn), including an uncontested $7bn contract to rebuild Iraq's oil infrastructure. Other companies benefiting from Iraq contracts include Bechtel, the giant US conglomerate, BearingPoint, the consultant group that advised on the drawing up of Iraq's new oil legislation, and General Electric. According to the US-based Centre for Public Integrity, 150-plus US 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 US 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 US, according to the Nobel prize-winning economist Joseph Stiglitz.

WHAT THEY SAID

"Oil revenues, which people falsely claim that we want to seize, should be put in a trust fund for the Iraqi people"

Tony Blair; Moving motion for war with Iraq, 18 March 2003

"Oil belongs to the Iraqi people; the government has... to be good stewards of that valuable asset "

George Bush; Press conference, 14 June 2006

"The oil of the Iraqi people... is their wealth. We did not [invade Iraq] for oil "

Colin Powell; Press briefing, 10 July 2003

"Oil revenues of Iraq could bring between $50bn and $100bn in two or three years... [Iraq] can finance its reconstruction"

Paul Wolfowitz; Deputy Defense Secretary, March 2003

"By 2010 we will need [a further] 50 million barrels a day. The Middle East, with two-thirds of the oil and the lowest cost, is still where the prize lies"

Dick Cheney; US Vice-President, 1999

Oil for War

noreply@blogger.com (Unknown) — Thu, 17 Jul 2008 12:44:00 +0000

After invading one of the most petroleum-rich countries on earth, the U.S. military is running on empty.

Napoleon famously said that an army marches on its stomach. That may have been true for his 19th-century force. But the modern American military runs on jet fuel—and lots of it.

Today the average American G.I. in Iraq uses about 20.5 gallons of fuel every day, more than double the daily volume consumed by U.S. soldiers in Iraq in 2004. Thus, in order to secure the third-richest country on the planet, the U.S. military is burning enormous quantities of petroleum. And nearly every drop of that fuel is imported into Iraq. These massive fuel requirements—just over 3 million gallons per day for Operation Iraqi Freedom, according to the Pentagon’s Defense Energy Support Center—are a key reason for the soaring cost of the war effort.

Controlling Iraq’s oil has historically been a vital factor in America’s involvement in Iraq and was always a crucial element of the Bush administration’s plans for the post-Saddam era. Of course, that’s not how the war was sold to the American people. A few months before the invasion, Secretary of Defense Donald Rumsfeld declared that the looming war had “nothing to do with oil, literally nothing to do with oil.” The war was necessary, its planners claimed, because Saddam Hussein supported terrorism and, left unchecked, he would unleash weapons of mass destruction on the West.

Nevertheless, oil was the foremost strategic focus for the U.S. military in Iraq. The first objectives of the invading forces included the capture of key Iraqi oil terminals and oilfields. On March 20, 2003, Navy SEALs engaged in the first combat of the war when they launched a surprise invasion of the Mina al-Bakr and Khor al-Amaya oil loading terminals in the Persian Gulf. A few hours later, Marine Lt. Therral Childers became the first U.S. soldier to die in combat in the invasion when he was killed fighting for control of the Rumaylah oil field in southern Iraq.

Oil was also the first objective when U.S. forces reached Baghdad on April 8. Although the National Library of Iraq, the National Archives, and the National Museum of Antiquities were all looted and in some cases burned, the oil ministry building was barely damaged. That’s because a detachment of American soldiers and a half-dozen assault vehicles were assigned to guard the ministry and its records.

After all, the war’s architects had promised that oil money was going to rebuild Iraq after the U.S. military took control. In March 2003, Paul Wolfowitz told a Congressional panel, “The oil revenues of that country could bring between $50 and $100 billion over the course of the next two or three years. Now, there are a lot of claims on that money, but … we are dealing with a country that can really finance its own reconstruction and relatively soon.” As Michael Gordon and Bernard Trainor explained in their 2006 book, Cobra II, “The Pentagon had promised that the reconstruction of Iraq would be ‘self-financing,’ and the preservation of Iraq’s oil wealth was the best-prepared and -resourced component of Washington’s postwar plan.”

After the invasion, when inspectors failed to find any weapons of mass destruction, Bush and his supporters changed their story, claiming that the U.S. had invaded Iraq to spread democracy in the Middle East. When democracy failed to materialize, the justification for the invasion turned to oil. During an October 2006 press conference, Bush declared that the U.S. could not “tolerate a new terrorist state in the heart of the Middle East with large oil reserves that could be used to fund its radical ambitions or used to inflict economic damage on the West.”

The U.S. military and the new Baghdad government have failed, however, to secure Iraq’s tattered oil sector. As A.F. Alhajji, energy economist and professor at Ohio Northern University, has said, “whoever controls Iraq’s oil, controls Iraq.” For the last five years, it’s never been exactly clear who controls Iraq’s oil. That said, the country’s leading industry is slowly increasing output. In January, daily production hit 2.4 million barrels per day, the highest level since the U.S. invasion.

But America’s presence in Iraq isn’t making use of the local riches. Indeed, little, if any, Iraqi oil is being used by the American military. Instead, the bulk of the fuel needed by the U.S. military is being trucked in from the sprawling Mina Abdulla refinery complex, which lies a few dozen kilometers south of Kuwait City. In 2006 alone, the Defense Energy Support Center purchased $909.3 million in motor fuel from the state-owned Kuwait Petroleum Corporation. In addition to the Kuwaiti fuel, the U.S. military is trucking in fuel from Turkey. But some of that Turkish fuel actually originates in refineries as far away as Greece.

In 2007 alone, the U.S. military in Iraq burned more than 1.1 billion gallons of fuel. (American Armed Forces generally use a blend of jet fuel known as JP-8 to propel both aircraft and automobiles.) About 5,500 tanker trucks are involved in the Iraqi fuel-hauling effort. That fleet of trucks is enormously costly. In November 2006, a study produced by the U.S. Military Academy estimated that delivering one gallon of fuel to U.S. soldiers in Iraq cost American taxpayers $42—and that didn’t include the cost of the fuel itself. At that rate, each U.S. soldier in Iraq is costing $840 per day in fuel delivery costs, and the U.S. is spending $923 million per week on fuel-related logistics in order to keep 157,000 G.I.s in Iraq. Given that the Iraq War is now costing about $2.5 billion per week, petroleum costs alone currently account for about one-third of all U.S. military expenditure in Iraq.

Soaring fuel costs are largely a product of the fact that U.S. forces have been forced to defend themselves against improvised explosive devices. The majority of American casualties in Iraq have been due to IED attacks, primarily on motor vehicles. The U.S. military has spent billions of dollars on electronic countermeasures to combat the deadly devices, but those countermeasures have largely failed. Instead, the troops have had to rely on old-fashioned hardened steel. Since the beginning of the war, the Pentagon has introduced numerous programs to add armor skins to its fleet of Humvees.

But even the newest armored Humvees, which weigh about six tons, haven’t been enough to protect soldiers against the deadly explosives. Last year, Congress, the White House, and the Pentagon agreed on a four-year plan to spend about $20 billion on a fleet of 23,000 mine-resistant ambush protection vehicles or MRAPs. Last August, the Pentagon ordered 1,520 of the vehicles at a cost of $3.5 million each.

The MRAPs mean even greater demand for fuel from U.S. troops in Iraq. An armored Humvee covers perhaps 8 miles per gallon of fuel. One version of the MRAP, the Maxxpro, weighs about 40,000 pounds, and according to a source within the military, gets just 3 miles per gallon. The increased demand for fuel for the MRAPs will come alongside the need for an entirely new set of tires, fan belts, windshields, alternators, and other gear.

This swelling of the logistics train creates yet another problem for the military: an increase in supply trucks on the road, which demands yet more fuel and provides insurgents with a greater range of targets to attack.

While the U.S. military chases its own fuel tail in Iraq, a country that sits atop 115 billion barrels of oil—about 9.5 percent of the world’s total—the global energy industry is racing forward with new alliances and deals, many of which would have been unthinkable before the invasion. Those alliances have far-reaching significance for America’s foreign and energy policy. The world’s oil market is no longer shaped by U.S. military power. Markets are trumping militarism. As one analyst put it recently, dollars are replacing “bullets as shapers of the geopolitical picture.”

The importance of this point is obvious: as the effectiveness of militarism in controlling global energy trends is declining, the U.S. is spending billions of dollars a week in Mesopotamia on a war effort that—if John McCain is right—could drain the American treasury for decades to come. Meanwhile, America’s key rivals, China and Russia in particular, are using their influence to forge economic alliances that are realigning the global balance of power. They are creating a multi-polar world in which America’s influence will be substantially diminished.

This realignment is particularly advantageous for major energy exporting countries such as Russia, Abu Dhabi, Saudi Arabia, Qatar, and of course, Iran. These states are taking advantage of higher energy prices caused by ever-increasing global energy demand and tightening supplies. And while the Bush administration has tried to diminish the influence of countries like Iran and Russia, there’s little, if anything, the U.S. can do to slow the trend. The myriad of energy exploration and production contracts that the Iranians have signed in recent months proves the point.

Meanwhile, Russia’s state-controlled behemoth, Gazprom, has consolidated its hold on the European natural gas market. Add the massive financial power of the sovereign wealth funds of just three countries—Abu Dhabi, Saudi Arabia and Kuwait, who hold a combined $1.4 trillion in assets—and the shift in power becomes even more apparent. Higher energy prices are the main difference between the first Iraq War and the second, says Jeff Dietert, a managing director at Simmons & Company International, a Houston-based investment banking firm that focuses on the energy sector. “It’s a completely different result from the first Iraq War, which was really a demonstration of military prowess. It was quick and decisive versus the current situation in Iraq, which is slow, expensive and drawn out.”

The Kurds have been quick to exploit new opportunities in the fast-changing oil market. In direct defiance of the weak central government in Baghdad, the Kurdistan Regional Government has signed 15 oil exploration deals with 20 companies from 12 countries. Increasing oil production benefits the Kurds. It also helps Turkey, which stands to reap more revenue from the Kirkuk to Ceyhan pipeline, which will carry much of the new production. A Norwegian company, DNO ASA, has already built a pipeline from their Tawke oil field north of Mosul to an interconnection point immediately next to the Kirkuk-Ceyhan pipeline.

Geneva-based Addax Petroleum is another big player in Kurdistan. During a presentation at an oil and gas conference in Connecticut in September, the company’s chief financial officer, Michael Ebsary, said that Addax’s potential reserves in Kurdistan may be as large as 2.7 billion barrels of oil. (Addax’s partner in the project is a Genel Enerji, a subsidiary of the Cukorova Group, one of Turkey’s biggest conglomerates.) “Everyone sees the Kurdish region as an area that has to be developed. There’s tons of oil there,” Ebsary told me. “It has to get out.”

The same can be said for Iranian oil and gas. One of the unintended consequences of the Iraq War has been the strengthening of Iran’s influence in the region. In 2007 alone, the Iranians cut deals—worth perhaps $50 billion over the next few decades—with companies from Britain, Spain, Brazil, China, Austria, Turkey, and Malaysia. In addition to those projects, the Iranian government is still negotiating the pricing formulas for the long discussed, much-delayed Peace Pipeline, the $7 billion, 1600-mile conduit to carry Iranian gas to Pakistan and India. In 2005, Susil Chandra Tripathi, the secretary of India’s ministry of petroleum and natural gas, promised that the deal would eventually go through. He told me that the U.S. may “want to isolate Iran, but that doesn’t mean Iran will quit producing crude oil and gas, or that we will stop buying it.”

Another indication of the shift in power can be seen by looking at the new the Dubai Mercantile Exchange, which last June began trading the Oman Crude Oil Futures Contract. By getting into the energy futures business, Dubai is assuring that the crude oil coming out of the Persian Gulf has its own benchmark price—one that is not reliant on Western crude oil standards such as West Texas Intermediate and North Sea Brent. It also puts Dubai in competition with the traditional trading hubs in New York and London. In July 2006, Gary King, the CEO of the Dubai exchange, told me that the emergence of the exchange and the new futures contract indicates that the Persian Gulf is “the center of the world’s biggest hydrocarbon province. Most of the growth in oil consumption is in Asia-Pacific. So it’s a natural shift in gravity. Our timing is very opportune to be in that center of gravity.”

This change cannot be stopped or ignored. In today’s multi-polar world, economic interests, not military force, predominate. “It used to be that the side with the most guns would win,” says G.I. Wilson, a recently retired Marine Corps colonel, who has written extensively on terrorism and asymmetric warfare and spent 15 months fighting in Iraq. Today, says Wilson, the side “with the most guns goes bankrupt.”

Since World War II, America has held fast to the idea that controlling the oil flow out of the Persian Gulf must be assured at the point of a M-16 rifle. But the cost of that approach has been crippling. As the U.S. military pursues its occupation of Iraq—with the fuel costs approaching $1 billion per week—it’s obvious that the U.S. needs to rethink the assumption that secure energy sources depend on militarism. The emerging theme of the 21st-century energy business is the increasing power of markets. The U.S. can either adapt or continue hurtling down the road to bankruptcy

Future of Iraq: The spoils of war

noreply@blogger.com (Unknown) — Thu, 17 Jul 2008 12:31:00 +0000

How the West will make a killing on Iraqi oil riches

Iraq's massive oil reserves, the third-largest in the world, are about to be thrown open for large-scale exploitation by Western oil companies under a controversial law which is expected to come before the Iraqi parliament within days.

The US government has been involved in drawing up the law, a draft of which has been seen by The Independent on Sunday. It would give big oil companies such as BP, Shell and Exxon 30-year contracts to extract Iraqi crude and allow the first large-scale operation of foreign oil interests in the country since the industry was nationalised in 1972.

The huge potential prizes for Western firms will give ammunition to critics who say the Iraq war was fought for oil. They point to statements such as one from Vice-President Dick Cheney, who said in 1999, while he was still chief executive of the oil services company Halliburton, that the world would need an additional 50 million barrels of oil a day by 2010. "So where is the oil going to come from?... The Middle East, with two-thirds of the world's oil and the lowest cost, is still where the prize ultimately lies," he said.

Oil industry executives and analysts say the law, which would permit Western companies to pocket up to three-quarters of profits in the early years, is the only way to get Iraq's oil industry back on its feet after years of sanctions, war and loss of expertise. But it will operate through "production-sharing agreements" (or PSAs) which are highly unusual in the Middle East, where the oil industry in Saudi Arabia and Iran, the world's two largest producers, is state controlled.

Opponents say Iraq, where oil accounts for 95 per cent of the economy, is being forced to surrender an unacceptable degree of sovereignty.

Proposing the parliamentary motion for war in 2003, Tony Blair denied the "false claim" that "we want to seize" Iraq's oil revenues. He said the money should be put into a trust fund, run by the UN, for the Iraqis, but the idea came to nothing. The same year Colin Powell, then Secretary of State, said: "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."

Supporters say the provision allowing oil companies to take up to 75 per cent of the profits will last until they have recouped initial drilling costs. After that, they would collect about 20 per cent of all profits, according to industry sources in Iraq. But that is twice the industry average for such deals.

Greg Muttitt, a researcher for Platform, a human rights and environmental group which monitors the oil industry, said Iraq was being asked to pay an enormous price over the next 30 years for its present instability. "They would lose out massively," he said, "because they don't have the capacity at the moment to strike a good deal."

Iraq's Deputy Prime Minister, Barham Salih, who chairs the country's oil committee, is expected to unveil the legislation as early as today. "It is a redrawing of the whole Iraqi oil industry [to] a modern standard," said Khaled Salih, spokesman for the Kurdish Regional Government, a party to the negotiations. The Iraqi government hopes to have the law on the books by March.

Several major oil companies are said to have sent teams into the country in recent months to lobby for deals ahead of the law, though the big names are considered unlikely to invest until the violence in Iraq abates.

James Paul, executive director at the Global Policy Forum, the international government watchdog, said: "It is not an exaggeration to say that the overwhelming majority of the population would be opposed to this. To do it anyway, with minimal discussion within the [Iraqi] parliament is really just pouring more oil on the fire."

Vince Cable, the Liberal Democrat Treasury spokesman and a former chief economist at Shell, said it was crucial that any deal would guarantee funds for rebuilding Iraq. "It is absolutely vital that the revenue from the oil industry goes into Iraqi development and is seen to do so," he said. "Although it does make sense to collaborate with foreign investors, it is very important the terms are seen to be fair."

Energy war: India and China face off in Central Asia

noreply@blogger.com (Unknown) — Sun, 13 Jul 2008 16:17:00 +0000

Call it a diplomatic fandango. Heavy-duty Chinese bulldozers groan day and night, building motorable roads that will connect towns with cities in Kazakhstan. In the countryside, Russian engineers are busy putting new cables on newly-erected towers to put a fresh spark into the rusty, unreliable electrical grid.

On the streets of Tashkent and Dushanbe, Bollywood numbers incite local people to break into impromptu jigs. And in the war-torn dustbowls of Afghanistan, American workers are building schools and hospitals in the middle of non-stop gunfire. The Indians are doing the same, at the risk of their lives. This is the soft side of the story — efforts to woo the Central Asian republics with humanitarian charm.

The hard truths of the world's sudden love for the region are hidden behind the barbed wire fences and camouflaged battle gear. In the past few years, military bases have cropped up across the region. The Americans have several bases in Central Asia, including Afghanistan. The Russians, Nato and Chinese too have established military posts in the region. Even India can claim to have set up an air defence unit in Tajikistan.

This week, as the oil prices soared to $147 per barrel, the world energy scenario became bleaker. With the market analysts frequently talking about oil climbing up to $200 by early next year, now there is no doubt that another oil shock — worse than its previous avatar in the 1970s — is staring at all the energy-hungry economies, particularly India and China.

Already branded villains of this scary scene, the two Asian countries will continue to guzzle more oil to feed their booming economies, even as demand for oil would fall in the industrialized world. In a report last week, the International Energy Agency (IEA) spoke about two future scenarios — the growth of "long-term demand led by China and India..." and "the supply threats, including increasing conflict...."

Already, analysts are fretting about the possibility of a US-Israel attack on Iran to stop it from getting the Bomb. If that comes to pass, it could alter the global energy calculus forever.

In Stephen Gaghan's landmark flick Syriana, when an oil-rich prince asks his advisor: "What are they thinking, my brother and these American lawyers?", the expert answers: "They're thinking that it's running out. It's running out... and 90% of what's left is in the Middle East. This is a fight to the death." With Iraq still burning and Iran also on the hit list, a new conflict could knock out the region from the world energy scene.

Since, in the long run, the world is going to be out of oil anyway, the energy powerplay is shifting from the Middle East to Central Asia. As their economies demand more and more fuel, both India and China are focusing on the region to ensure an interrupted supply of oil and gas.

But the competition is tough. The Americans and Russians are there too. And they have set up military bases in the region to protect their pipelines. India and China are following suit, with Beijing many steps ahead of India.

With the opening of China-Kazakhstan pipeline in December 2007, China has already secured much of the Kazakh oil. Working on a plan of making a new export corridor stretching from Kazakhstan's oil-rich Caspian basin to China, Beijing is making sure that its oil supplies are not disrupted by a conflict, as is the case with present oil deliveries from the Persian Gulf and Sudan.

At present, China gets more than 15% of its oil from Iran. But, with the Iranian leaders playing with fire, China is now looking for cheap energy resources in its own backyard, even as it contemplates a military base in Iran. "Energy is the Achilles' heel of China's economic growth. Beijing knows that only too well. A decision by Washington to take military action against Iran now would pull a far larger cast of actors into the fray than Iraq," says F William Engdahl, the author of the book, A Century of War: Anglo-American Oil Politics and the New World Order, in an article on his website.

Though it's been late to act, India has begun to look for oil and gas in the region. As India inches closer to its nuclear deal with the US, the proposed Iran-Pakistan-India gas pipeline is almost history. Even at the time of signing the nuke deal, then US assistant secretary of state Nicholas Burns had warned India that Iran "was not a reliable long-term supplier of fuel" and advised New Delhi to turn to places like Kazakhstan and Turkmenistan.

India is finally waking up to the huge potential of Central Asia as an alternative energy hub. A few months back, Indian vice president Hamid Ansari travelled to Turkmenistan and Kazakhstan with a delegation, exploring the possibilities of Indian participation in offshore Caspian Shelf for oil and gas blocks. India has also been exploring the possibility of joining the proposed Turkmenistan-Afghanistan-Pakistan gas pipeline. It was with an eye on the energy resources of the region and China's growing clout in Central Asia that India set up a military base at Ayni in Tajikistan two years ago.

"The global order is re-dividing into roughly two de facto blocs — one has the US at its core and the other has Russia-China at its core. Energy is the major dividing line between the two blocs," W Joseph Stroupe, a strategic analyst, wrote recently. By putting the nuclear deal on the fast track, New Delhi too seems to be all set to join the US bloc and become an active participant in the energy war in Central Asia.

IRAN HAS REALLY DONE IT...more deadlier than the nuclear..

noreply@blogger.com (Unknown) — Sun, 13 Jul 2008 07:55:00 +0000

Why the Dollar Bubble is about to Burst?

The Voice (issue 264 -) ran an article beginning, ' Iran has really gone and done it now. No, they haven't sent their first nuclear sub in to the Persian Gulf . They are about to launch something much more deadly -- next week the Iran Bourse will open to trade oil, not n dollars but in Euros' This apparently insignificant event has consequences far greater for the US people, indeed all for us all, than is imaginable.

Currently almost all oil buying and selling is in US-dollars through exchanges in London and New York . It is not accidental they are both US-owned.

The Wall Street crash in 1929 sparked off global depression and World War II. During that war the US supplied provisions and munitions to all its allies, refusing currency and demanding gold payments in exchange.

By 1945, 80% of the world's gold was sitting in US vaults. The dollar became the one undisputed global reserve currency -- it was treated world-wide as `safer than gold'. The Bretton Woods agreement was established.

The US took full advantage over the next decades and printed dollars like there was no tomorrow. The US exported many mountains of dollars, paying for ever-increasing amounts of commodities, tax cuts for the rich, many wars abroad, mercenaries, spies and politicians the world over. You see, this did not affect inflation at home! The US got it all for free! Well, maybe for a forest or two.

Over subsequent decades the world's vaults bulged at the seams and more and more vaults were built, just for US dollars. Each year, the US spends many more dollars abroad that at home. Analysts pretty much agree that outside the US , of the savings, or reserves, of all other countries, in gold and all currencies -- that a massive 66% of this total wealth is in US dollars!

In 1971 several countries simultaneously tried to sell a small portion of their dollars to the US for gold. Krassimir Petrov, (Ph. D. in Economics at Ohio University ) recently wrote, 'The US Government defaulted on its payment on August 15, 1971 . While popular spin told the story of `severing the link between the dollar and gold', in reality the denial to pay back in gold was an act of bankruptcy by the US Government.' The 1945 Breton Woods agreement was unilaterally smashed.

The dollar and US economy were on a precipice resembling Germany in 1929.
The US now had to find a way for the rest of the world to believe and have faith in the paper dollar. The solution was in oil, in the petrodollar. The US viciously bullied first Saudi Arabia and then OPEC to sell oil for dollars only -- it worked, the dollar was saved. Now countries had to keep dollars to buy much needed oil. And the US could buy oil all over the world, free of charge. What a Houdini for the US ! Oil replaced gold as the new foundation to stop the paper dollar sinking.

Since 1971, the US printed even more mountains of dollars to spend abroad.
The trade deficit grew and grew. The US sucked-in much of the world's products for next to nothing. More vaults were built.

Expert, C¨®il¨ªnn Nunan, wrote in 2003, 'The dollar is the de facto world reserve currency: the US currency accounts for approximately two thirds of all official exchange reserves. More than four-fifths of all foreign exchange transactions and half of all world exports are denominated in dollars. In addition, all IMF loans are denominated in dollars.'
Dr Bulent Gukay of Keele University recently wrote, 'This system of the US dollar acting as global reserve currency in oil trade keeps the demand for the dollar `artificially' high. This enables the US to carry out printing dollars at the price of next to nothing to fund increased military spending and consumer spending on imports. There is no theoretical limit to the amount of dollars that can be printed. As long as the US has no serious challengers, and the other states have confidence in the US dollar, the system functions.'

Until recently, the US-dollar has been safe. However, since 1990 Western Europe has been busy growing, swallowing up central and Eastern Europe .
French and German bosses were jealous of the US ability to buy goods and people the world over for nothing. They wanted a slice of the free cake too.
Further, they now had the power and established the euro in late 1999 against massive US-inspired opposition across Europe , especially from Britain - paid for in dollars of course. But the euro succeeded.

Only months after the euro-launch, Saddam's Iraq announced it was switching from selling oil in dollars only, to euros only -- breaking the OPEC agreement.. Iran , Russia , Venezuela , Libya , all began talking openly of switching too -- were the floodgates about to be opened?

Then aero planes flew into the twin-towers in September 2001. Was this another Houdini chance to save the US (petro) dollar and the biggest financial/economic crash in history? War preparations began in the US But first war-fever had to be created -- and truth was the first casualty. Other oil producing countries watched-on. In 2000 Iraq began selling oil in euros.
In 2002, Iraq changed all their petro-dollars in their vaults into euros. A few months later, the US began their invasion of Iraq .

The whole world was watching: very few aware that the US was engaging in the first oil currency, or petro-dollar war. After the invasion of Iraq in March 2003, remember, the US secured oil areas first. Their first sales in August were, of course, in dollars, again. The only government building in Baghdad not bombed was the Oil Ministry! It does not matter how many people are murdered -- for the US , the petro-dollar must be saved as the only way to buy and sell oil - otherwise the US economy will crash, and much more besides.

In early 2003, Hugo Chavez, President of Venezuela talked openly of selling half of its oil in euros (the other half is bought by the US ). On 12 April 2003 , the US-supported business leaders and some generals in Venezuela kidnapped Chavez and attempted a coup. The masses rose against this and the Army followed suit. The coup failed. This was bad for the US .

In November 2000 the euro/dollar was at $0.82 dollars, its lowest ever, and still diving, but when Iraq started selling oil in euros, the euro dive was halted. In April 2002 senior OPEC reps talked about trading in euros and the euro shot up. In June 2003 the US occupiers of Iraq switched trading back to dollars and the euro fell against the dollar again. In August 2003 Iran starts to sell oil in euros to some European countries and the euro rises sharply. In the winter of 2003-4 Russian and OPEC politicians talked seriously of switching oil/gas sales to the euro and the euro rose. In February 2004 OPEC met and made no decision to turn to the euro -- and yes, the euro fell against the dollar. In June 2004 Iran announced it would build an oil bourse to rival London and New York , and again, the euro rose. The euro stands at $1.27 and has been climbing of late.

But matters this month became far, far worse for the US dollar. On 5th May Iran registered its own Oil Bourse, the IOB. Not only are they now selling oil in euros from abroad -- they have established an actual Oil Bourse, a global trading centre for all countries to buy and sell their oil!

In Chavez's recent visit to London ; he talked openly about supporting the Iranian Oil Bourse, and selling oil in euros. When asked in London about the new arms embargo imposed by the US against Venezuela , Chavez prophetically dismissed the US as 'a paper tiger'.

Currently, almost all the world's oil is sold on either the NYMEX, New York Mercantile Exchange, or the IPE, London's International Petroleum Exchange.
Both are owned by US citizens and both sell and buy only in US dollars. The success of the Iran Oil Bourse makes sense to Europe , which buys 70% of Iran 's oil. It makes sense for Russia , which sells 66% of its oil to Europe . But worse for the US , China and India have already stated they are very interested in the new Iranian Oil Bourse.

If there is a tactical-nuclear strike on - deja-vu - `weapons of mass destruction' in Iran , who would bet against a certain Oil Exchange and more, being bombed too?

And worse for Bush. It makes sense for Europe , China , India and Japan-- as well as all the other countries mentioned above -- to buy and sell oil in Euro's. They will certainly have to stock-up on euros now, and they will sell dollars to do so. The euro is far more stable than the debt-ridden dollar. The IMF has recently highlighted US economic difficulties and the trade deficit strangling the US-- there is no way out.

The problem for so many countries now is how to get rid of their vaults full of dollars, before it crashes? And the US has bullied so many countries for so many decades around the world, that many will see a chance to kick the bully back. The US cannot accept even 5% of the world's dollars -- it would crash the US economy dragging much of the world with it, especially Britain .

To survive, as the Scottish Socialist Voice article stated, 'the US , needs to generate a trade surplus to get out of this one. Problem is it can't.'
This is spot on. To do that they must force US workers into near slavery, to get paid less than Chinese or Indian workers. We all know that this will not happen.

What will happen in the US ? Chaos for sure. Maybe a workers revolution, but looking at the situation as it is now, it is more likely to be a re-run of Germany post-1929, and some form of extreme-right mass movement will emerge...

Does Europe and China/Asia have the economic independence and strength to stop the whole world's economies collapsing with the US ? Their vaults are full to the brim with dollars.

The US has to find a way to pay for its dollar-imperialist exploitation of the world since 1945.. Somehow, eventually, it has to account for every dollar in every vault in the world.

Bombing Iran could backfire tremendously. It would bring Iran openly into the war in Iraq , behind the Shiite majority. The US cannot cope even now with the much smaller Iraqi insurgency. Perhaps the US will feed into the Sunni v Shiite conflict and turn it into a wider Middle-East civil-war.
However, this is so dangerous for global oil supplies. Further, they know that this would be temporary, as some country somewhere else, will establish a euro-oil-exchange, perhaps in Brussels .

There is one `solution' -- scrap the dollar and print a whole new currency for the US . This will destroy 66% of the rest of the world's savings/reserves in one swoop. Imagine the implications? Such are the desperate things now swimming around heads in the White House, Wall Street and Pentagon.

Another is to do as Germany did, just before invading Poland in 1938. The Nazis filmed a mock Polish Army attack on Germany , to win hearts and minds at home. But again, this is a finger in the dam. So, how is the US going to escape this time? The only global arena of total superiority left is military. Who knows what horrors lie ahead. A new world war is one tool by which the US could discipline its `allies' into keeping the dollar in their vaults.

The task of socialists today is to explain to as many as possible, especially our class, that the coming crisis belongs purely to capitalism and (dollar) imperialism. Not people of other cultures, not Islam, not the axis of evil or their so-called WMDs. Their system alone is to blame.

The new Iranian Oil Bourse, the IOB, is situated in a new building on the free-trade-zone island of Kish , in the Persian Gulf . It's computers and software are all set to go. The IOB was supposed to be up and running last March, but many pressures forced a postponement. Where the pressure came from is obvious. It was internationally registered on 5th May and supposed to open mid-May, but its opening was put off, some saying the oil-mafia was involved, along with much international pressure. ............ ......... ......

In 2007 Crude was trad ed around 60 usd. Everyone kn e w dollar was getting weaker and weaker day by day. Th e n US with the help of their two NYMEX & IPE exchange started rising the price of crude by Future trading on crude( called speculation) . Today crude is around 140 usd. It means whole world who were paying 60 usd, are now paying 140 usd, which means demand of dollar has gone upto 230% and dollar start ed rising again .