[Congressional Record (Bound Edition), Volume 153 (2007), Part 1]
[House]
[Pages 985-988]
[From the U.S. Government Publishing Office, www.gpo.gov]




               OIL INDUSTRY MAIN BENEFICIARY OF IRAQ WAR

  The SPEAKER pro tempore (Mr. Welch of Vermont). Under a previous 
order of the House, the gentleman from Washington (Mr. McDermott) is 
recognized for 5 minutes.
  Mr. McDERMOTT. Mr. Speaker, the American people have not received 
very much information about a major issue in and around the Iraq war, 
and the oil industry would like to keep it just that way. Fortunately, 
investigative journalism is still being practiced, and I want to share 
information uncovered by a reporter for AlterNet, in the United States, 
and a major Sunday story this week in The Independent, a newspaper in 
the United Kingdom.
  The number one Iraq story for all of 2006 on AlterNet, which is an 
Internet-based news and opinion site, was a two-part series by a 
reporter, Joshua Holland, entitled: ``Bush's Petro-Cartel Almost Has 
Iraq's Oil.''
  Last Sunday, The Independent carried stories with these headlines: 
``Future of Iraq: The Spoils of War, How the West Will Make a Killing 
on Iraqi Oil Riches.'' And ``Blood and Oil: How the West Will Profit 
from Iraq's Most Precious Commodity.''
  Members of Congress are limited in how much information we can enter 
into the record at one time, so I will enter into the record The 
Independent story. I will also encourage every American to seek out and 
read the complete AlterNet story, which is available online.
  These investigative reports paint a disturbing picture and raise 
troubling questions about big oil's attempting to steal the oil wealth 
and resources of the Iraqi people. From the beginning of the Iraq 
invasion, more moderate voices, especially overseas, questioned whether 
the ulterior motive behind toppling Saddam Hussein was a grab for Iraqi 
oil. In this scenario, democracy is a by-product of oil production, not 
the real reason for military action in Iraq.
  Gaining access to the oil wealth of Iraq has had oil industries 
salivating for years. Gaining control of that oil wealth would be a 
prize beyond compare for the oil industry. Iraq has the third largest 
oil reserves in the world, and there are many oil geologists who 
believe that vast additional oil reserves are just waiting to be 
discovered in Iraq's western desert. They call it the Holy Grail, and 
some believe the untapped riches could propel Iraq from third to first 
place in the world's oil reserves.
  An estimated 115 billion barrels of oil reserves are under Iraq. 
Today's price is $53 a barrel, and that is an 18-month low. The 
American people are still suffering from the oil price shocks and high 
prices at the pump, and the oil industry is booking record profits in 
the billions of dollars every quarter, record profits in a world that 
is addicted to oil.
  In 1999, Vice President Cheney was running Halliburton, and he said 
in a

[[Page 986]]

speech that another 50 million barrels of oil would be needed by the 
end of the decade, and the key was the Middle East.
  This administration and the British prime minister have repeatedly 
said that the U.S. invasion was not about oil. But these investigative 
reporters say a new law is quietly working its way through the Iraqi 
government that would give unprecedented access, control and oil wealth 
to Western oil companies. It would happen under what is known as a 
production sharing agreement, a PSA.
  Here is how The Independent put it: ``PSAs allow a country to retain 
legal ownership of its oil but gives a share of profits to 
international companies that invest in infrastructure and operation of 
the wells, pipelines and refineries.''
  The news account continues: ``Their introduction would be a first for 
a major Middle Eastern oil producer. Saudi Arabia and Iran, the world's 
number one and twoexporters, both tightly control their industries 
through state-owned companies with no appreciable foreign 
collaboration, as do most members of the Organization of Petroleum 
Exporting Countries, OPEC.''
  The PSA's would give big oil in Iraq deals that would last for 30 to 
40 years. These deals, the news reports point out, would force Iraq to 
share its oil wealth with Western outsiders, not their own people. Up 
to 70 percent of the profits would go to outside producers in the first 
years, and the news media points out that these deals could be enforced 
ahead of any social and economic reforms in Iraq and ahead of any 
social programs. One person quoted called it ``colonialism lite.''
  The President said it is not about oil. The prime minister said it is 
not about oil. They said Iraqi oil was for Iraqi people. But the 
legislation working its way through the Iraqi government is about 
nothing but Western access to the oil and its incredible wealth. The 
leaked drafts of the legislation show the West in a role with access 
and control, including a provision in the leaked draft document that 
would enable Western oil companies to transfer their wealth right out 
of Iraq. They don't have to leave it in Iraq at all.
  Quoting directly from the leaked draft, ``A foreign person may 
repatriate its exports in accordance with foreign exchange regulations 
in force at the time.'' In fact, the language is so favorable to 
companies that they would be able to take every bit out and sell the 
rest to the world.
  A vast amount of Iraq's wealth would be up for sale, by foreigners, 
to foreigners.
  Quoting the leaked draft: ``It may freely transfer shares pertaining 
to any non-Iraqi partners.''
  The United States has been in Iraq for over 4 years already.
  How long will we be there if western oil companies are given free 
rein to put a vice grip on Iraq's oil?
  If western oil companies get a 30-year agreement, we may call Iraq 
the 30-year war.
  The President said Iraq was all about democracy. News reports now 
give us a picture that say it might have been all about the oil.
  Read the news reports and decide for yourself.
  I include for the Record the article from The Independent.

                  [From The Independent, Jan. 7, 2007]

   Blood and Oil: How the West Will Profit From Iraq's Most Precious 
                               Commodity

       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 U.S. 
     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 U.S. 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 United States 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 
     United States 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 
     United States 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 U.S. 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 elite 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 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

[[Page 987]]

      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 percent 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 percent of the profits in a 
     production sharing agreement, once all the costs have been 
     recouped, is a large amount.'' In more stable countries, 10 
     percent would be the norm.
       While the costs are being recovered, companies will be able 
     to recoup 60 to 70 percent of revenue; 40 percent 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 
     percent 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 percent 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 percent 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 nongovernment 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 $lbn 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 U.S. 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 
     U.S. 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 U.S. 
     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 U.S. intelligence 
     report as a cause celebre for terrorism.


           America protects its fuel supplies--and contracts

       Despite U.S. 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 U.S.-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 U.S. 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

[[Page 988]]

     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 U.S. companies piecing a broken Iraq together

       The task of rebuilding a shattered Iraq has gone mainly to 
     U.S. 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 U.S. 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 U.S. 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 U.S. 
     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 U.S. 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 U.S. conglomerate, BearingPoint, the consultant group 
     that advised on the drawing up of Iraq's new oil legislation, 
     and General Electric. According to the U.S.-based Centre for 
     Public Integrity, 150-plus U.S. 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 U.S. 
     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 U.S., 
     according to the Nobel prize-winning economist Joseph 
     Stiglitz.

                          ____________________