Democrats & Liberals Archives

A Benchmark Made of Oil

You have heard about the benchmarks that Iraqis need to achieve. Once they do this there would be political reconciliation and then American troops would be able to go home. Sounds great. But have you stopped to think about these benchmarks? One of them concerns oil.

The official story is that if all Iraqi factions agree on an oil law, that will demonstrate political maturity. But what does the oil law say? Here are a few of its requirements:

Allow two-thirds of Iraq’s oil fields to be developed by private oil corporations. In contrast, the oil industry has been nationalized in every other major Middle Eastern producer for over 30 years.

Place governing decisions over oil in a new body known as the Iraqi Federal Oil and Gas Council, which may include foreign oil companies.

Open the door for foreign oil companies to lock up decades-long deals now, when the Iraqi government is at its weakest.

If you were an Iraqi legislator, regardless of what faction you belong to, would you vote for such a law? Would you vote to give ExxonMobil, Chevron and other Big Oil companies control of what belongs to you? Would you throw away 115 billion barrels of proven reserve that is worth something like $7 trillion?

This is called a benchmark? Sign on the dotted line or else. It is more like a hold-up.

Let's stop telling Iraqis what to do. Let's consider Iraq a sovereign nation - which it is. Let's get out of Iraq so the Iraqi people may decide their own fate. We don't need to supply benchmarks, especially not benchmarks made of oil.

Posted by Paul Siegel at August 23, 2007 6:00 PM
Comments
Comment #230485

Paul,

I agree that we should not be telling Iraqis what to do, but the only reference I can find to the three benchmarks you list are on the alternet.org web site with no link to the original ‘leaked’ document they were from. Do you know where a link to the actual document that they are voting on that says these things are?

Posted by: Rhinehold at August 23, 2007 8:35 PM
Comment #230488

Probably the single biggest reason the groups in Iraq cannot get together is oil and how to divide it. The reason they NEED to argue over it is that the distribution of oil will be made by politics, not economics. Government control makes the oil revenue non-fungible. Privatization would diversify oil revenues.

Think of Iraq as three kids trying to divide an inheritance. As long as they are fixed on particular valuable goods, where the winner has to take all, they cannot come to any agreements. If/when they figure out the total value of the goods, they have a chance of dividing the inheritance in ways they all can consider fair.

The Iraqi state can enjoy the proceeds from privatization and it can tax the firms. It takes aways the winnner take all, political imperative.

Many of the problems in Iraq are the direct result of Saddam’s socialism. He systematically destroyed civil society and all those intermediaries between the government and the society. He centralized power so that now everybody has to fight politically to divide this centralized power.

Posted by: Jack at August 23, 2007 9:23 PM
Comment #230489

Paul,

Which Iraq are you talking about? I think there are already three Iraq’s. That would be Shia Iraq which is closely aligned with Iran, Sunni Iraq which is closely aligned with Saudi Arabia, and Kurdish Iraq which already finalized their own oil law:

“WASHINGTON, Aug. 22 Iraq’s Kurdistan Regional Government will not wait for a federal oil law before it starts signing more contracts to explore what is thought to be sizeable reserves in its territory. The KRG has already signed a handful of contracts with small oil companies and, now that it has passed a regional law governing any underground oil and natural gas, it will not put development on hold while Baghdad implodes.”

http://www.earthtimes.org/articles/show/96956.html

Only Bush and the Neo-Cons still believe there can be any other ultimate outcome. Of course we could help the Maliki government invade the Kurdish north to stop this nonsense.

Posted by: KansasDem at August 23, 2007 9:25 PM
Comment #230495

Jack’s model is the antithesis of Wal-Mart’s which cut out the middle man and assumed the profits of the Middlemen for themselves. Now, Jack argues it is just and right according to his economic theory that the Iraqis pay the foreign middlemen profits and not drill, pump, and distribute their oil keeping the profits from all three functions for the people of Iraq.

Had no idea you were a Wal-Mart opponent, Jack. While how to divide oil revenues shared with Western Foreign companies or not, may be a big hurdle for Iraq, the centuries old religious sect, family, and tribal feuds, are without question the biggest of their problems. Just getting the Sunnis back to Congress would be an important step.

But who needs OIL revenues when American taxpayers will act as the teet that feeds Iraqi’s needs? Nothing like a good welfare scheme to keep the majority of Iraqis in need from joining the rebellion against the hand that feeds them. Odd policy for a Republican President opposed to Democrat welfare schemes.

Posted by: David R. Remer at August 23, 2007 10:18 PM
Comment #230498

David

It does not have to be foreign owners, although they can bring in the captial and management to make the oil fields more productive.

WalMart is a private firm. It does not enjoy the power to directly make laws and it is dependent on the market. You do not have to shop at WalMart and, powerful as it is today, others are developing other business plans that are taking away some of WalMarts money.

Re Iraq - Some of these conflict are not really that old. Historical conflicts only are acute when fueled by current interests. The Germans and the French were enemies for centuries; then they stopped being.

Iraq was a majority Sunni country until around 1850. People converted to Shia Islam because they could avoid certain obligation of the Ottomans and assert their differentness. Whole tribes converted for good, practical political reasons.

I say around 1850, because nobody really paid attention at the time. It mattered about as much as the growth or decline of the Lutheran Church in the U.S. It is an issue today because it pays to be an issue today. One reason it pays is because of the political nature of the spoils system. If we weaken that sufficiently, by decentralizing power and privatizing a little more, I think we will be surprised how fast “age old enemies” start to get along, as the British and the French did, or the French and the Germans, or the Poles and the Germans or the Lutherans and Catholics or…

Re American money. I only wish it was that easy. We still do have a structural problem in Iraq. Even if we succeed as above, there are around 2.5 million Iraq men between ages of 18-22, who have some military abilities and not much to do. Idle hands are the Devil’s workshop.

I do not underestimate the challenge in Iraq. But I think that a stable, reasonably democratic Iraq that is not a threat to its neighbors is an achievable goal and one worth trying to achieve, when we consider the alternatives.

Posted by: Jack at August 23, 2007 11:15 PM
Comment #230504
Jack’s model is the antithesis of Wal-Mart’s which cut out the middle man and assumed the profits of the Middlemen for themselves. Now, Jack argues it is just and right according to his economic theory that the Iraqis pay the foreign middlemen profits and not drill, pump, and distribute their oil keeping the profits from all three functions for the people of Iraq.

Wal-Mart may be a good and very instructive analogy here, but for the exact opposite reason that David claims.

For starters, it’s nonsense to claim that Wal-Mart is not a middleman. It’s the biggest and most successful “middleman” the world has ever seen.

If you run a company that produces a product (any product), would you prefer to sell it at the factory or a company-run store or sell it at Wal-Mart? The fact is that any CEO worth his salt knows that having a middleman like Wal-Mart (with all the expertise and resources they bring to the table) stocking, marketing, and selling your goods is like winning the lottery. The competition to get goods on Wal-Mart’s shelves is fierce, and companies try to cut each other’s throats for the privilege.

The oil industry is no different. It takes considerable scientific and managerial expertise, as well as a lot of resources, to extract, refine, transport, and sell oil. If some desert tribe wants oil revenue, they’ll get a hell of a lot more of it by bringing in the pros and cutting them in instead of relying completely on the non-existant technical and managerial skills of their own people. But of course if that’s what they want to do in Iraq or anywhere else, they’re welcome to try. Let the Iraqis decide for themselves and don’t try to interfere with them because of your own preferences for a socialist state-run economy and your animus against private enterprise.

Posted by: Loyal Opposition at August 24, 2007 12:19 AM
Comment #230505

I have to agree, I’ve been reading the proposed law and I see nothing to support the three ‘requirements’ that are listed on the iraqoillaw.com or alternet.org websites.

There are provisions for allowing foreign oil companies to come in and attempt oil discovery (there are a lot of areas where they haven’t looked yet) for a price. There are several phases, first a 4 year max, extensions for up to another 4 years if approved by the Iraq Oil Ministry each of 2 years. If oil is discovered the company that found it would get a 15-20 year exclusive rights contract, max, and then it reverts back to Iraqi control. The first thing the law says, btw, is “Oil and gas are owned by all the people of Iraq in all the Regions and Governorates”.

They are under no requirement to accept any contract or discovery process by any foreign company, as I can see. I still haven’t found that requirement as has been suggested by the various anti- groups.

The only requirement that the administration has said is that they must have a law in place to deal with the oil, how the proceeds are distributed, etc. I can’t find any requirement for how they decide that, just that one is in and agreed to by their congress. Now, whether or not they think it is fair and will vote on it is a different matter.

So, unless someone has a link to any requirements that I haven’t found, please do so. Simply stating that it is the case doesn’t sway me very much. If there are some, they should be stopped and let the Iraqis make this determination for themselves, of course. But I get the sneaking suspicion that hysteria/conspiracy are rampant on this site…

Posted by: Rhinehold at August 24, 2007 12:29 AM
Comment #230516

LO, your interpretation of what I referred to is faulty. First, Wal-Mart owns its own distributions systems, cutting out the warehousing and distribution middlemen. Second, it buys its products directly from the manufacturers wherever possible, thus cutting out the wholesale middlemen.

I am fairly confident you took my meaning as intended. Which would make your response disingenuous. If you disagree with my explanation here, the business knowledge in your reply will doubtless scream for better education.

I don’t disagree with your statement that Wal-Mart functions as a large middleman itself between foreign manufacturers and American consumers. But, that is also known in business parlance as a Retail Seller.

Posted by: David R. Remer at August 24, 2007 2:02 AM
Comment #230517

Rhinehold, it’s all moot isn’t it, with the Sunnis having boycotted the Congress? Any decision made in their absence results in more civil conflict. Failure to make a decision results in prolonged civil conflict. Such is the nature of a quagmire, a word used by Dick Cheney in 1994 to describe what would happen if America did invade Iraq.

Posted by: David R. Remer at August 24, 2007 2:20 AM
Comment #230518

Jack said: “It does not have to be foreign owners,”

Yes, it does, the contracts have already been drawn up and agreed to as part of the Bush Iraq aid package agreement with Iraqi governing body of the time from what I understand.

Jack said: “WalMart is a private firm. It does not enjoy the power to directly make laws and it is dependent on the market.”

What does that have to do with middlemen costs? Whether the government hires middleman or a private company hires middleman services, it reduces profits by increasing operating costs. Your reply does not address my comments.

Jack said: “Re Iraq - Some of these conflict are not really that old.”

True, but some are centuries old. Combined with the blood feud between Shiites who suffered under Sunni Baathist rule, there’s a whole lot of Hatfields and McCoys, with debts to settle, recent and ancient. Where there is hate, any excuse regardless of age, will do.

Jack said: “I think we will be surprised how fast “age old enemies” start to get along, as the British and the French did, or the French and the Germans,…”

The examples you cite involved superordinate goals. Meaning goals which were common to both sides which could not be accomplished by either side alone, but, only with the cooperation of the adversary. As in the rebuilding of Europe, including restoration in France and the rebuilding of Germany on the condition that they put aside their differences.

Where do you see such a superordinate goal in the Iraq scenario that would be perceived as such by the Shiites and Sunnis? The Bush administration could have created a superordinate goal for the Sunnis and Shiites in the form of controlled access to infrastructure and utilities. That is if anyone in the Bush administration even knew what a superordinate goal was. Which they obviously didn’t and apparently still don’t.

Jack said: “Re American money. I only wish it was that easy.”

But it has been just that easy. Bush says he needs money, and the Congress forks over Americans paychecks; that would be future American paychecks, because the money going to Iraq and Dubai’s Haliburton and Blackwater was financed through national debt to be paid by future workers of America. Republican majority Congress, Democratic majority Congress, same difference. Bush asks, Congress delivers. Couldn’t be easier to keep the vast majority of Iraqis form joining the insurgency or al-Queda. Remember, our Sergeants and Lieutenants were given millions to hand out to Iraqis on the streets. Easy. WAY TOO DAMNED EASY.

Jack said: “We still do have a structural problem in Iraq. Even if we succeed as above, there are around 2.5 million Iraq men between ages of 18-22, who have some military abilities and not much to do. Idle hands are the Devil’s workshop.”

Among many others, quite right.

Jack said: “I do not underestimate the challenge in Iraq.”

But you do underestimate the cost to America and Americans for staying very much longer there. The opportunity costs in neglected other foreign policy areas (can you say al-Queda headquarters in Pakistan?) and domestic needs like our own crumbling infrastructure, bridges, ancient waste water and drinking water piping systems, New Orleans and incredible number of people denied access to rebuilding funds which suddenly evaporated, etc. etc. etc.

You also, IMO, way overestimate the consequences of our announced date certain phased redeployment out of Iraq. Iraq was, is, and will continue to be a regional problem for the Middle East. Damned shame Clinton and Bush failed to realize this. Talk about a superordinate goal. Our leaving becomes the granddaddy of all superordinate goals for the wealthy regimes in ALL of the neighboring nations to Iraq. You want to see bilateral cooperation between Saudi Arabia and Iran, all we have to do is announce we are leaving. They will recognize the superordinate goal before them almost immediately and the incredible cost of not working cooperatively toward it.

Jack said: “But I think that a stable, reasonably democratic Iraq that is not a threat to its neighbors is an achievable goal and one worth trying to achieve, when we consider the alternatives.”

I agree entirely. It is just not ours to work for or achieve. We are a barrier to that goal. Iraq has been, is, and will always be in the foreseeable future a Middle Eastern regional problem. Saddam’s invasion of Kuwait was a Middle Eastern regional problem. We assumed the problem as our own because of our fears regarding our dependency upon Middle Eastern oil. But, I will tell you a well guarded secret. Middle Eastern exporters want the peaceful export of their oil just as bad as we want to import it.

Had we not repelled Saddam Hussein from Kuwait, so quickly, other resolutions, Middle Eastern resolutions would have been forthcoming pretty damn quick. Hell, they might have even hired our military all expenses paid to do what we did for at our own expense.

With the possible exception of Iran, there isn’t a single Iraqi neighboring nation that wouldn’t have paid to Stop Saddam Hussein dead in his tracks within a few weeks to months, as a defense of their own wealth, exports, and internal peace amongst their own populations demanding action to allay fears of their own country being next.

Perhaps the Bush 1 Administration feared those nations would contract the services of Russia to repel Saddam Hussein, Egypt, Jordan, and Saudi Arabia excepted of course. Dunno.

But there is a self-fulfilling prophecy issue when one considers oneself the baddest Ass military power in the world. It jumps at every opportunity to live up to that image, regardless of personal cost. This can be seen in American prisons everyday by the guards and wardens.

Posted by: David R. Remer at August 24, 2007 3:05 AM
Comment #230534

DR
As I recall most of the cost of expelling Iraq from Kuwait was picked up by regional states.


Reported today is that a large Rep lobbying firm with Whitehouse ties is pushing for a return of Allawi to replace Maliki.They are doing so in Washington,not Bagdad. Seems Alawi is more helpful to those nice little” mom and pop” giant oil companies that are so good for the free market and democracy.Looks like we are going with the Diem solution. Of course it will be by Al Quiada not the CIA.

Posted by: BillS at August 24, 2007 11:35 AM
Comment #230537


Since the American invasion of Iraq, Iraq’s oil production has fallen from 3.5 million barrels per day to around 2 million. The responsibility for this loss in production and the subsequent loss in revenue for the Iraqi people lies squarely on the American government. The Administration rejected the sound advice that 350,000 and 500,000 troops were needed to invade and secure the country. As a result, there were not enough troops to guard the oil fields and terrorist were easily able to destroy infastructure and pipelines.

In Feburary of this year, Maliki announced a oil bill had been drafted and sent to the Iraqi Parliment. Particulars of the deal were that American and British oil companies would invest in rebuilding the infastructure in return for long term contract that would guarantee the oil companies 75% of the profits.

Maliki could not deliver the votes on the bill and that is one of the reasons why the Administration has turned against Maliki and why a lobbying firm owned by Hallie Barber and other prominent Republicans is lobbying in Iraq to have Maliki replaced. Had Maliki been able to deliver on the oil bill, all other reasons for removing Maliki may have been shuffled to the side.

Posted by: jlw at August 24, 2007 11:59 AM
Comment #230561

Rhinehold:

See http://www.democracynow.org/article.pl?sid=07/02/20/1523250 where Amy Goodman interviews Raed Jarrar. He is the Iraq Project Director for Global Exchange, and he has obtained a copy of the proposed oil law, which he translated from Arabic and posted on his website, raedinthemiddle.blogspot.com.

Posted by: Paul Siegel at August 24, 2007 2:17 PM
Comment #230705

I agree with Paul and his statements about the U.S. leaving Iraq and about how ridiculous the benchmark for oil is. I don’t think that this benchmark looks good to the anti-war activists who think that U.S. is only fighting this was on terror because they are oil greedy. I, personally, do not think this oil benchmark is going to be passed by Iraqi legislators because there is no real benefit for them.

Posted by: Jon at August 26, 2007 1:30 AM
Comment #230724

jlw
And just look at the big winners from the decline of Iraqi production. Big oil has never had it so good. The only thing better for them would be these oil laws. They would of course control production even then. Iraqi oil supply was not the objective. Iraqi oil control was and is.

Posted by: BillS at August 26, 2007 2:33 PM
Comment #230825

One word… reparations.

I have no problem with Iraq paying part of the cost for the war in which we overthrew a despotic regime and gave them an independant democracy (even though they aren’t willing or able to run their own country).

I’m so tired of this.

Posted by: b0mbay at August 27, 2007 5:24 PM
Comment #230834

bOmbay
Reparations to whom? US oil companies are private. They do pay some taxes but not even enough to cover the cost of the military keeping the sea lanes open or garding the oil fields.If you think you will get a bargain at the pump let me sell you a bridge.

Posted by: BillS at August 27, 2007 6:22 PM
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