As I write this, Israel's military planning chief Maj. Gen Amir Eshel is reported by ABC News to have said that if Iran gets a nuclear bomb, an arms race will be touched off that will lead to "a global nuclear jungle."
It is the latest in a deluge of rhetoric, military actions and sanctions generated by the United States and Israel supposedly intended to discourage Iranians from any having anything to do with nuclear energy.
But the situation is more complex, and the anti-Iran campaign has a great deal to do with the fortunes of the world's largest oil companies, rather than with nuclear threats to either Israel or the United States.
Indeed, there are real questions about whether Iran's nuclear program is any greater threat than the weapons of mass destruction (WMD) said to have been possessed by Iraq and used to justify the 2003 invasion of that nation. And, as with Iraq, the role of the world's largest oil companies in the unfolding Iran tragedy is ignored by the mainstream press.
To understand what we are heading into, it is important to look first at Iraq, not Iran, to see what the US government/Big Oil combine wants to achieve in the Middle East.
The Big Plan for Iraqi Oil
Meghan O'Sullivan, the Kirkpatrick Professor of the Practice of International Affairs at Harvard's John F. Kennedy School of Government, describes US/Big Oil intentions for Iraq quite clearly in a July 2011 paper, "Iraqi Politics and Implications for Oil and Energy," which she wrote for the James A. Baker III Institute for Public Policy at Rice University.
I am quoting O'Sullivan because she has held professional positions that would give her a very clear understanding of why the United States drove Iraq out of Kuwait in 1990 and why it invaded Iraq in 2003, as well as what it sees at stake now in Iraq and Iran. Here is her background, cited in her Baker Institute paper:
Her expertise includes nation-building, counterinsurgency, the geopolitics of energy, decision-making in foreign policy, Iraq, Afghanistan and Pakistan. Between 2004 and 2007, she was special assistant to President George W. Bush and Deputy National Security Advisor for Iraq and Afghanistan during the last two years of this tenure. She spent two years in Iraq, including a period in fall 2008 to help conclude the security agreement and strategic framework between the United States and Iraq. Prior to this, O'Sullivan was senior director for strategic planning and Southwest Asia (which includes the Middle East) at the National Security Council; political advisor to the Coalition Provisional Authority administrator and deputy director for governance in Baghdad ... a consultant to American oil and gas companies ... O'Sullivan has been awarded the Defense Department's highest honor to civilians, the Distinguished Public Service Medal and three times awarded the State Department's Superior Honor Award.
It is also important to note that the Baker Institute energy reports cited for the purposes of this article are supported by the world's largest oil companies, including Chevron, ConocoPhillips, ExxonMobil, Koch Supply & Trading, Shell, and Total. It is also noteworthy that the US military "surge" in Iraq in 2007 was endorsed by a "study group" co-chaired by James Baker III.
On Iraq and its future global economic role, O'Sullivan writes:
Strangely, both energy and Iraq command their own space in American political discourse and in strategic discussions among experts and policymakers. When the two are connected, it is generally in the misleading context of debating whether the wars in Iraq were about American access to oil. Rarely is there an appreciation of how closely the supply of energy (globally) and the price of energy are connected to stability in Iraq. [Emphasis mine.] This connection - which has to do not with American access to Iraqi oil specifically, but the ability of Iraq to bring more of its oil to global markets - should be front and center in the minds of American, Japanese and international policy makers considering the variety of reasons why the world still needs to be concerned with Iraq's trajectory, and should keep support for Iraq's fledgling new institutions among its highest priorities.
O'Sullivan is saying that a major goal, if not the goal, of the Iraq wars was to get control over Iraqi oil production so that its flow of oil would be predictable and coincident with the interests of major industrial nations, not just the United States. Unmentioned in relation to "stability", however, was the United States' and Britain's need to get rid of Saddam Hussein and to get transnational oil corporations back into Iraq, from which they had been excluded since Iraq nationalized its oil industry in 1972.
Iraq Reserve Capacity Key to "Reasonable Price" for Oil
O'Sullivan is clear that Iraq, as home to some of the world's largest oil reserves, is seen as absolutely critical to Western economies as a reserve oil producer that can keep global oil supplies topped off should there be dramatic shortfalls from other producers.
In explaining the situation, she says that, while there has been spare oil capacity because of the global economic slowdown of 2009 and 2010, we are faced by other factors that may quickly tighten oil supplies, such as economic recovery and the "new turbulence in the Middle East." She points out that Saudi Arabia may not be in the position it has been in to pump extra oil to moderate prices because economic uncertainty in the oil market has made it and other oil producers "reluctant to build more spare capacity."
O'Sullivan is specific about what is expected from Iraqis:
... the international community is very likely to be reliant on Iraq (and Saudi Arabia) to bring more oil to international markets in the coming years if the world is to avert another supply crunch like that which occurred in 2008. The severity and timing of such a crisis is dependent on a wide variety of factors, such as the growth of Chinese demand and whether Iran remains subject to international sanctions over the long term. But the projections of many companies and international agencies include Iraq bringing substantial quantities of oil to international markets in the coming years. The International Energy Agency envisions Iraq bringing on line an additional 3.6 million barrels a day (b/d) of oil to what it currently produces; BP similarly sees Iraq producing 5.5 million b/d in total by 2030. The inability of Iraq to bring these significant quantities of oil on line in the coming years diminishes the prospect of the world meeting global energy demand at a reasonable price and increases the possibility of another global economic crisis. [Emphasis mine.]
Indeed, the dramatic reduction in Iraqi oil production resulting from the 2003 invasion and occupation - hence its inability to pump oil to meet growing oil needs of India and China - is viewed as a major cause of the world economic slowdown that began in 2008.
A November 2007 report by Congress' Joint Economic Committee found that, "the consistent disruptions resulting from the [Iraq] war have affected oil prices" by reducing the flow of Iraqi oil to world markets and creating a climate of uncertainty and fear that "would cause investors to bid up the price of oil on futures markets, and increase the stockpiles of oil they hold against an emergency."
Nobel economics laureate Joseph Stiglitz has said that the current weak world economy is directly connected to the Iraq war because, as he said in a 2008 interview with blogger and activist John Aravosis, "the war is what set the price of oil going higher and higher."
FedEx head Fred Smith traces the US economic collapse that started in 2008 to the spike in oil prices. In his April 2011 testimony before the US Senate Committee on Environment and Public Works, Smith said, "The rise in oil prices was the match that lit the fuse of the mortgage mess and the subsequent recession." He advocates steps to totally end US transportation's oil dependency.
O'Sullivan does not address alternatives to oil, nor does she examine whether Iraqis wish to be responsible for the health of the world economy. O'Sullivan also ignores the role of major oil company profit expectations in the international and domestic pricing of oil. It is apparent, however, that what Big Oil has found in Iraq will put them in a very profitable and powerful position if Iraq moves into the role outlined by O'Sullivan.
Keep the Boom Booming
For Big Oil, the 2003 US/British invasion and occupation of Iraq can be judged a success.
As noted in a July 2011 Baker Institute report by Jareer Elass and Amy Myers Jaffe - "Iraqi Oil Potential and Implications for Global Oil Markets and OPEC [the Organization of Petroleum Exporting Countries] Politics" - BP, ExxonMobil and Shell, as well as French, Russian, Chinese and other firms, have profitably entered Iraq's oil fields after having been excluded since 1972.
The big three just mentioned have stakes in three of Iraq's "super-giant" oil fields, which, combined, will produce about 60 percent of the oil coming from all Iraq's major fields, according to Elass and Jaffe. Production from these fields is projected optimistically to rise from the current level of 2 million barrels a day to 12.2 million barrels a day by 2017. This would put Iraq and Saudi Arabia at essentially even production levels and greatly benefit the oil firms.
According to Elass and Jaffe, the oil companies are finding that, generally speaking, their production levels have increased faster than expected. For example, a consortium headed by ExxonMobil has "surpassed initial targets" at the 8.7 billion barrel oil reserve in the "super-giant" West Qurna-1 field.
Complex contracts make it difficult to determine exactly how much each company will be making, but profits will be very healthy. Indeed, it appears that the oil companies, rather than the Iraqi people, have gotten the best of the deals. In a 2010 analysis, "The Fiscal Regime of Upstream Oil Contracts and Rumaila Economics & AlAhdab Disadvantages," petroleum contract analyst Amhed Jiyad said:
... one can say that the fiscal regime of the model contracts has it advantages for both Iraq and the N/IOCs [national and independent oil companies], and also disadvantages, especially for Iraq. Earlier assessments of these contracts have led this author (Jiyad, 2009b) to conclude that they are not to the best interest of the Iraqi people as stipulated in the Constitution.
Jiyad noted that oil companies have "expressed that they are expecting rate of return on investment ranges from 15% to 20%," which he notes is a "very good rate of return on investment."
He says that Iraqi officials "have to start from now to expedite the institutional capacity development regarding the fiscal regime to insure proper functioning and to protect the interest of Iraq in all phases of the contractual relationships." But, as will be discussed, the Iraq government is unlikely to have the capacity any time soon to do the monitoring recommended by Jiyad, who wrote a 2011 letter to Iraqi parliamentarians about "the large qualitative edge that works in theory and practice for the benefit of IOCs [independent oil companies]."
For example, BP got Iraq to rewrite its original contract so that, among other things, it and its Chinese partner in Rumaila, Iraq's largest oilfield, will get payments from Iraq even if production is interrupted. Greg Muttitt, a specialist in analyzing complex oil contracts, quoted in The Guardian on July 31, 2011, said that "a backroom deal gave BP a stranglehold on the Iraqi economy, and even influence over the decisions of OPEC."
The Pesky Problems of a War That Impoverished People and Destroyed Infrastructure
With oil popping out of the ground in Iraq virtually anywhere anyone pushes a drill bit, the oil companies are concerned about obstacles to expanding their production, say Elass, Jaffe and O'Sullivan.
The Baker Institute reports break down the obstacles to production into internal obstacles and external obstacles.
Although the authors don't put it this way, the foremost internal obstacles stem from the wars Iraq has endured, particularly the 2003 invasion and subsequent occupation.
Iraq has been devastated physically, intellectually and emotionally by a war that killed 1 million Iraqis, destroyed families and produced several million refugees, many of them highly trained professionals. Iraq, which was, before the wars, one of the most advanced nations in the Middle East in education and meeting human needs, now cannot consistently provide even the most basic, essential public services.
Noted journalist Dahr Jamail reported from Baghdad for Al Jazeera on January 9, 2012: "As a daily drumbeat of violence continues to reverberate across Iraq, people here continue to struggle to find some sense of normality, a task made increasingly difficult due to ongoing violence and the lack of both water and electricity."
Citing figures of the United Nation Development Program, Jamail reports: "Iraq has a poverty rate of 23 per cent, which means roughly six million Iraqis are plagued by poverty and hunger, despite the recent increase in Iraq's oil exports. Iraq's Ministry of Planning has also announced that the country needed some $6.8bn to reduce the level of poverty in the country."
Nothing appears to have changed since August 2010, when imprisoned former Iraqi diplomat Tariq Aziz, now facing execution, said:
There is nothing here any more. Nothing. For thirty years Saddam built Iraq, and now it is destroyed. There are more sick than before, more hungry. The people don't have services. People are being killed every day in the tens, if not hundreds. We are all victims of America and Britain. They killed our country.
The reports of O'Sullivan and Elass/Jaffe describe an Iraq with a weak, disorganized central government that is being challenged by provincial leaders for oil contracts and oil income. While the nation's parliament has stepped aside to allow oil service contracts to be awarded, there remains the possibility that the contracts will be challenged by Iraqis who want Iraqi oil to again be nationalized. Among them is Moqtada al-Sadr, a Shiite clergyman and Iraqi leader who has been assisted by Iran, and who has developed one of the most cohesive political power bases in Iraq. The uncertain and shifting struggles for power are resulting in continued bombings and killings.
Big Oil Competes With Iraqi People for Utility Service, Infrastructure
Iraqi politicians threatened by protests demanding basic public services are scrambling to meet these needs while also meeting oil companies' demands for improved infrastructure such as pipelines, ocean shipping facilities and electricity. The oil companies also want quicker action to approve their projects.
"Like other countries in the Middle East," O'Sullivan reports, "Iraq has experienced a number of public protests in 2011. But unlike in Egypt, Tunisia, or Libya, such protests have not sought to change the nature of the regime, or even remove the current individuals in power ... The most common concern is lack of electricity. Demand for electricity has more than doubled since 2003 while supply increases have been modest."
Political leaders promised that electricity services to the residential sector would take precedence, creating new problems for the [oil] industry's ability to mobilize the electricity services need for the water injection program. Power is needed both to pump seawater north to the southern oil fields as well as to fuel desalination plants that will be required to convert seawater into usable water for injection purposes. With even less electricity now expected to be made available from the national power grid for oil companies IOCs [independent oil companies] are currently seeking new solutions to generate the electricity needed for the water injection program.
Elass and Jaffe also note that, "The country's severe shortages of electricity had led many politicians to back off any suggestions for programs that would favor natural gas exports over provision of domestic electricity services."
O'Sullivan notes: "The need to respond to an increasingly restive and vocal population helps explain several recent developments," including a decision for an agreement with Iran on a pipeline to bring Iranian natural gas to Baghdad. This, of course, expands Iranian influence in Iraq, where it is already extremely strong in the south.
If protests are not tamped down, O'Sullivan can see the possibility of the current government of Nouri al-Maliki being replaced, and:
Theoretically, Iraq's protests could result in a breakdown of the system and collapse of the country's institutions and subsequent lapse into civil disorder; this scenario is very much at the margins. In terms of the implications of these more extreme scenarios, the removal of the current prime minister would undoubtedly slow down decision-making, suspend any future [oil contract] bid rounds, and open a wider door to opposition to the existing contracts. It would not, however, signal the end of Iraq's efforts to ramp up production and export of oil and gas. The most extreme and unlikely scenario of civil chaos, in contrast, could be consistent with a suspension of current operations and a return to energy stagnation depending on the scope and depth of unrest.
The Baker Institute reports do not mention the continuing detention of tens of thousands of Iraqis, many in inhumane conditions. This is a tragedy in itself, and an indicator of extreme political instability.
US Military Lends Muscle to Oil Companies' Economic Might
In March 2008, UPI reported that Gen. David Petraeus let it be known that he had just called the heads of major oil companies to urge them to invest in Iraq. The announcement was made at a time when US and Iraqi forces were engaged in a bitter battle for control in southern Iraq around the oil city of Basra. Implicit in the Petraeus invitation was the promise that the US military would ensure security for the major oil companies' Iraqi operations. UPI reported, quoting a Petraeus spokesman: "'Sometimes to get the ball rolling it takes a senior leader to engage other senior leaders in the corporate world to have a discussion' on the realities of security in Iraq."
The Petraeus calls were consistent with a recommendation from the Baker Iraq Study Group that the US should encourage investment in Iraqi oil by "international energy companies."
PressTV reported in December that 8,000 US troops have remained in Iraq: "The troops, along with 14 warplanes, 125 helicopters and 28 drones are mainly based in Iraq's Kurdistan region in the north."
In addition, the US is maintaining a force of about 15,000 troops in Kuwait, on the border of Iraq. In a January 14, 2012 article, Army Times quotes a US army official: "This is a larger contingent than we've typically had ... Working with the Kuwaitis to have a U.S. presence there is very helpful as far as general regional security is concerned."
Oil companies drilling through the writhing mass of pain that is Iraq will continue to look to US military power as their hole card.
The Future for Iran in the US/Big Oil Plan
The Baker Institute reports open up the issue of Iran by saying that, effectively, it won't matter if Iraq becomes politically stable and successfully increases its oil production if it can't get a larger production quota from OPEC, the body that works to maximize oil prices somewhere short of bankrupting the world economy.
In short, what good is a lot more Iraqi oil if there is no market for it?
Iraq is a member of OPEC, but the Baker reports say that it will not have a say in setting OPEC quotas - or, therefore, pricing - until it has a production level of 3.5 to 4 million barrels a day, rather than the 2 million barrels a day it produces now. But Iraqis have said that, once at the table, they want to be given a production quota equal to that of Saudi Arabia. The major OPEC players having a say in Iraq's OPEC quota are Saudi Arabia and Iran, both of whom are threatened economically by losing market share to Iraq.
O'Sullivan writes in her July 2011 Baker Institute report:
While Iraq may be confident of its resource base and even its ability to bring significant new oil to global markets, both Iran and Saudi Arabia are likely to be threatened by the prospect. Iran is interested in gaining and maintaining influence over Iraq's energy strategy and in integrating the energy infrastructure of both countries; it does not want see Iraq as a dominant producer in such a partnership. Saudi Arabia's interests are even more vital, given that its international clout is largely tied to its position as the sole swing producer in OPEC. [Emphasis mine.] Were Iraq to decide to develop and maintain spare capacity - a policy issue on which there is currently no consensus in Baghdad - it could seriously undermine Saudi Arabia's ability to play this strategic role. Moreover, particularly in the wake of the Arab Spring, both Iran and Saudi Arabia are nervous about any developments that could dramatically force down the price of oil, and therefore their overall revenues. If Iraq were to bring large quantities of additional oil on line in an uncoordinated fashion, the price of oil could well tumble.
This means, essentially, that if Iraq is to expand its oil production significantly - which O'Sullivan says "is truly a strategic issue not only for Iraq, but also for the United States, Japan and the international community" - then either Saudi Arabia or Iran is going to have to give way, and, for the foreseeable future, have a portion of their oil sales taken over by Iraq.
As noted earlier, Iran already has considerable economic and political power in Iraq, particularly in southern Iraq, the location of the super-giant oil fields. To repeat, Iraq also has signed an agreement with Iran for a gas pipeline to Baghdad in response to public protest over the lack of electricity and other public services. In addition, as mentioned above, Al Sadr has been allied with Iran and has spoken for nationalizing Iraq's oil as Iran has done with its own oil. Thus, the possibility of an Iraq-Iran oil alliance competing with, and undermining, Saudi dominance, is a real possibility.
Arab Spring Shifts Power Dynamics in Saudi-Iran-Iraq Oil Triangle
The Elass/Jaffe report describes Saudi Arabia in a weakened condition in its rivalry with Iran:
For the past decade, Saudi Arabia has failed to commit to a sufficient program of oil field expansion to maintain its ability to dramatically lower oil prices and that lack of foresight is now presenting problems for Riyadh. Indeed, among the best lever(s) Saudi Arabia had to influence Iran's policies was its ability to dramatically lower the price of oil. Iran is dependent on oil revenues for over 65 percent of government revenues. The kingdom, with its plentiful foreign financial reserves, could have been in a position to withstand a period of low oil prices to diminish Iranian power in the region. But it is currently unable to use this strategic weapon against Tehran because oil markets both do not believe in Saudi's market power now nor in its power in the future. The market is convinced that Saudi Arabia has limited spare capacity and therefore oil prices have remained high, despite Saudi announcements of production increases. In essence, project delays and problems in the kingdom's upstream [production] sector are thwarting the kingdom's regional influence to contain Iran and limiting its global power.
Elaas/Jaffe point out that Saudi leaders, who are Sunni, facing public unrest, including unrest among their Shia population, are spending money on social services and the military that might have been used to expand oil production. In this context, the Saudi leaders also are very concerned about the regional political influence of Shia-led Iran. They write:
Saudi Arabia's willingness to send troops to nearby Bahrain to suppress peaceful public protests by Bahraini Shias seeking greater political participation was aimed not only to draw the line against Iranian expansionism, but also to lower the risks that Shia unrest not spread within its own borders where Shia populations have staged protests of their own.
Thus, we have a situation in which a weakened, threatened Saudi Arabia is facing challenges from Iraq for a bigger share of the oil market. Iran presents Saudi Arabia and Iraq with political, religious and oil challenges as Iraqis struggle for new balances of power in the wake of the withdrawal of US troops. Iraqis may need the prospect of dramatically expanding their share of the global oil market in order to have an incentive for greater cooperation and for providing more help for the oil companies. The oil companies want to expand their share of the global market.
Sanctions Intended to Shift the Oil Market Away From Iran
The United States and oil companies have apparently concluded that the best way to address these issues is to use sanctions to wean away Iran's oil and gas customers. A side benefit would be shifting more oil business away from Iran's nationalized oil industry. The fondest hope of big oil would be an Iranian government crisis or collapse that would open up Iran to their operations.
Iraq's current oil sector investment strategies mesh nicely with US interests both by promoting involvement of US firms in Iraq's energy sector and by allowing Iraq to play a more active role in stabilizing oil markets in the years ahead. The United States should be proactive in its diplomacy to support a continuation of this pathway and to discourage other regional powers from disrupting this important element of Iraq's future. [Emphasis mine.]
Sanctions against Iranian oil would fit within the recommendation I have highlighted.
Japan is the first nation to respond positively to the US oil sanctions resulting from legislation that became law on December 31, 2011. It is reportedly looking to Saudi Arabia and the United Arab Emirates to replace Iranian oil, and it seems Japan intends to make its oil and gas trading shift long-term, looking toward US fracking operations among other new sources. (Fracking involves high-pressure pumping of fracking fluids into underground rock layers to release oil and gas, and entails a variety of environmental hazards.)
The Financial Times (FT) reported January 7/8, 2011, that Japanese firms, along with China's Sinopec and France's Total, are investing in "the booming US shale oil and gas sector." FT noted that fracking is banned in France.
The report cited investment in fracking projects "from Ohio to Alabama," and in Texas and Pennsylvania. "Japan's thirst for US shale oil and gas could grow," FT said, "if a US-led effort to tighten sanctions on Iran forces it to stop buying its oil."
China, although it does not support the new sanctions, is discussing buying petroleum products from Saudi Arabia, the United Arab Emirates and Qatar, according to a January 15, 2012, Reuters article. Iran has cautioned its oil-producing neighbors not to increase production and sales to countries shifting its purchasing away from Iran.
China buys about 20 percent of Iran's oil, a level similar to that purchased by European nations. But given their economic crisis, Europeans are likely to phase in the sanctions slowly.
That sanctions and military conflict with Iran may spike oil prices seems to have been judged by the United States and its European allies as an acceptable risk if the long-term goal of "stabilizing" oil prices in the face of the Arab Spring is achieved. This may be an extremely tragic calculation in the short term if there is a war with Iran. In any case, in the long term, the young people and other dissidents of the Middle East will undoubtedly see oil price "stability" as further evidence of overbearing, colonial-style interference that is contrary to their needs.
In the meantime, people in very expensive clothes, people with important job titles, and people in uniforms with many stars, medals and braids are scurrying to make their plans around their understanding that the United States, the world's most powerful military in a technological sense, has taken the decision to break Iran politically and economically, and, if necessary, physically and emotionally.
In this time of fear and fiction, there are those hoping to seek their fortunes in Iran, just as they did in Iraq.