Oil in a Week – The Role of Oil in the Iraq War

The invasion of Iraq in 2003 raised many questions. And as it is known, there almost always is a multitude of causes leading up to wars, and rarely are wars caused by only one reason. The 2003 war is hence no different from other conflicts in this regard.

In the case of the Iraq war, there was the question of the weapons of mass destruction (WMDs), a ‘clash of civilizations’ type of conflict with Islam following the attacks on New York and Washington in 2001, and the bid to spread democracy in Arab countries. There was also the issue of removing the Baath regime, the complicity between the neoconservatives from the ranks of the Republican Party in America and Israel to destroy the Iraqi army and the Iraqi institutions, and the ambition to control Iraq’s oil.

According to the information available, there was a consensus to invade Iraq prior to 2001. The issues of terrorism and WMDs as motivation for the war were as of then yet unestablished by the U.S administration in the spring of 2003 when the war was launched. However, it is not yet clear what the objective of the invasion and of the ensuring military victory were, given the subsequent blow to peace and stability in the country, and opening the country wide open for the Iranian influence, the sworn enemy of the United States and Israel. It is also not clear what the extent of the role played by oil was in this war. As is known, the occupation authorities did not attempt to develop the oil sector there between the years 2003 and 2008.

In truth, the oil production level in Iraq has deteriorated during that period compared to its levels under the former regime. Also, Iraq’s recent openness to the international oil companies in 2009 was not matched by a noticeable openness to American companies. It was the Asian state-owned companies (especially from Malaysia and China) that had the lion’s share, and only two American companies, ExxonMobil and Occidental Petroleum, were awarded contracts. More importantly, the American companies did not broadly participate in two other Iraqi tenders. Their refrainment from competing with other companies was thus notable and remarkable, especially Chevron which withdrew in the last minute.

There are several possible explanations for such a limited degree of participation by American companies. It is possible, for instance, that some of these companies made the decision to not become directly involved in Iraq at present, except through foreign companies in which the former have stakes. For example, ConocoPhillips owns a significant stake in the Russian company Lukoil. It is also possible that these companies are refraining from participating in the tenders due to their resentment of the fact that the principle of engaging in direct bilateral negotiations with the Ministry of Oil was not adopted, something that would have otherwise allowed these companies a better chance to win the contracts under the conditions that suit them best, instead of losing to the better and more competitive terms of the Asian national companies. This is particularly valid given the wide profit margin that these American companies are seeking compared to the rest of the companies, and the anger that some congressmen expressed regarding the preferential treatment that American oil companies should have had otherwise, in terms of investing in Iraq, given that the United States has led its allies in the invasion, and provided the brunt of the troops and funds to oust the former regime. The American [oil] companies adopted this same view, and hence did not participate in the tenders.

What role did oil have in this war then? Despite the many books and articles on the occupation of Iraq, this topic is still surrounded by a shroud of mystery. Analyses pertaining to this issue are still in the realm of generalities without delving into the important details. For example, there are two statements given by two American officials who played a part in the decision making process at the time, or at least, were in the loop in terms of the discussions. These officials are the central bank governor and the Secretary of Treasury, and while their statements are brief, they confirm the significance in oil in the war, but without adding any details about its actual relation to the war.

Such facts have placed the Iraqi oil official in a difficult position: Favouring U.S companies would have stirred a storm of criticism about inviting international companies to invest in Iraq again. But in that case, the Iraqi official could have said: It was important to open the Iraqi oil reserves for foreign companies in order for the country to quickly benefit (within a decade) from the additional hundreds of billions of dollars which can be derived, as evidenced by the result that has been reached later.

But then the tapping of Iraq’s huge oil reserves so quickly can be in itself one of the main objectives of the war, in order to dump massive quantities of oil supplies in the markets, and not reply on the oil coming from one or two major countries (Saudi Arabia and Russia).

As for the U.S companies, it is very likely that we are witnessing a long plan, one that is still in its infancy. It is very possible that American companies, at a later time, will purchase stakes in some of the companies operating in Iraq, which is a normal procedure in the world of the international oil industry.

Meanwhile, this hypothesis about dumping oil supplies in the markets itself raises a puzzling question: Is it in the interest of the United States and the West to have deteriorating oil prices at a time when there are serious efforts to develop alternative energies that can economically compete with fossil fuels?

*. Mr. Khadduri is an energy expert