[Paleopsych] The Crude Oil Biz.

[K.E.]

The Crude Oil Biz.

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  Crude Dudes
     By Linda McQuaig
     The Toronto Star
     Monday 20 September 2004

     From his corner office in the heart of New York's financial
district, Fadel Gheit keeps close tabs on what goes on inside the
boardrooms of the big oil companies. An oil analyst at the prestigious
Wall Street firm Oppenheimer & Co., the fit, distinguished-looking
Gheit has been watching the oil industry closely for more than 25
years.

     Selling the modern world's most indispensable commodity has never
been a bad business to be in - particularly for the small group of
companies that straddle the top of this privileged world. But never
more so than now.

     "Profit-wise, things could not have been better," says Gheit, "In
the last three years, they died and went to heaven .... They are all
sitting on the largest piles of cash in their history."

     But to stay rich they have to keep finding new reserves, and that's
getting tougher. Increasingly it means cutting through permafrost or
drilling deep underwater, at tremendous cost. "The cheap oil has
already been found and developed and produced and consumed," says
Gheit. "The low-hanging fruit has already been picked."

     Well, not all the low-hanging fruit has been picked.

     Nestled into the heart of the area of heaviest oil concentration in
the world is Iraq, overflowing with low-hanging fruit. No permafrost,
no deep water. Just giant pools of oil, right beneath the warm ground.
This is fruit sagging so low, as it were, that it practically touches
the ground under the weight of its ripeness.

     Not only does Iraq have vast quantities of easily accessible oil,
but its oil is almost untouched. "Think of Iraq as virgin territory
.... This is bigger than anything Exxon is involved in currently ....
It is the superstar of the future," says Gheit, "That's why Iraq
becomes the most sought-after real estate on the face of the earth."

     Gheit just smiles at the notion that oil wasn't a factor in the
U.S. invasion of Iraq. He compares Iraq to Russia, which also has large
undeveloped oil reserves. But Russia has nuclear weapons. "We can't
just go over and ... occupy (Russian) oil fields," says Gheit. "It's a
different ballgame." Iraq, however, was defenceless, utterly lacking,
ironically, in weapons of mass destruction. And its location, nestled
in between Saudi Arabia and Iran, made it an ideal place for an ongoing
military presence, from which the U.S. would be able to control the
entire Gulf region. Gheit smiles again: "Think of Iraq as a military
base with a very large oil reserve underneath .... You can't ask for
better than that."

     There's something almost obscene about a map that was studied by
senior Bush administration officials and a select group of oil company
executives meeting in secret in the spring of 2001. It doesn't show the
kind of detail normally shown on maps - cities, towns, regions. Rather
its detail is all about Iraq's oil.

     The southwest is neatly divided, for instance, into nine
"Exploration Blocks." Stripped of political trappings, this map shows a
naked Iraq, with only its ample natural assets in view. It's like a
supermarket meat chart, which identifies the various parts of a slab of
beef so customers can see the most desirable cuts .... Block 1 might be
the striploin, Block 2 and Block 3 are perhaps some juicy tenderloin,
but Block 8 - ahh, that could be the filet mignon.

     The map might seem crass, but it was never meant for public
consumption. It was one of the documents studied by the ultra-secretive
task force on energy, headed by U.S. Vice-President Dick Cheney, and it
was only released under court order after a long legal battle waged by
the public interest group Judicial Watch.

     Another interesting task force document, also released under court
order over the opposition of the Bush administration, was a two-page
chart titled "Foreign Suitors for Iraqi Oilfields." It identifies 63
oil companies from 30 countries and specifies which Iraqi oil fields
each company is interested in and the status of the company's
negotiations with Saddam Hussein's regime. Among the companies are
Royal Dutch/Shell of the Netherlands, Russia's Lukoil and France's
Total Elf Aquitaine, which was identified as being interested in the
fabulous, 25-billion-barrrel Majnoon oil field. Baghdad had "agreed in
principle" to the French company's plans to develop this succulent slab
of Iraq. There goes the filet mignon into the mouths of the French!

     The documents have attracted surprisingly little attention, despite
their possible relevance to the question of Washington's motives for
its invasion of Iraq - in many ways the defining event of the post-9/11
world but one whose purpose remains shrouded in mystery. Even after the
supposed motives for the invasion - weapons of mass destruction and
links to Al Qaeda - have been thoroughly discredited, talk of oil as a
motive is still greeted with derision. Certainly any suggestion that
private oil interests were in any way involved is hooted down with
charges of conspiracy theory.

     Yet the documents suggest that those who took part in the Cheney
task force - including senior oil company executives - were very
interested in Iraq's oil and specifically in the danger of it falling
into the hands of eager foreign oil companies, rather than into the
rightful hands of eager U.S. oil companies.

     As the documents show, prior to the U.S. invasion, foreign oil
companies were nicely positioned for future involvement in Iraq, while
the major U.S. oil companies, after years of U.S.-Iraqi hostilities,
were largely out of the picture. Indeed, the U.S. majors would have
been the big losers if U.N. sanctions against Iraq had simply been
lifted. "The U.S. majors stand to lose if Saddam makes a deal with the
U.N. (on lifting sanctions)," noted a report by Germany's Deutsche Bank
in October 2002.

     The disadvantaged position of U.S. oil companies in Saddam
Hussein's Iraq would have presumably been on the minds of senior oil
company executives when they met secretly with Cheney and his task
force in early 2001. The administration refuses to divulge exactly who
met with the task force, and continues to fight legal challenges to
force disclosure. However a 2003 report by the General Accounting
Office, the investigative arm of Congress, concluded that the task
force relied on advice from the oil industry, whose close ties to the
Bush administration are legendary. (George W. Bush received more money
from the oil and gas industry in 1999 and 2000 than any other U.S.
federal candidate received over the previous decade.)

     The Cheney task force has been widely criticized for recommending
bigger subsidies for the energy industry, but there's been little focus
on its possible role as a venue for consultations between Big Oil and
the administration about Iraq. One intriguing piece of evidence
pointing in this direction was a National Security Council directive,
dated February 2001, instructing NSC staff to co-operate fully with the
task force. The NSC document, reported in The New Yorker magazine,
noted that the task force would be considering the "melding" of two
policy areas: "the review of operational policies towards rogue states"
and "actions regarding the capture of new and existing oil and gas
fields." This certainly implies that the Cheney task force was
considering geopolitical questions about actions related to the capture
of oil and gas reserves in "rogue" states, including presumably Iraq.

     It seems likely then that Big Oil, through the Cheney task force,
was involved in discussions with the administration about getting
control of oil in Iraq. Since Big Oil has sought to distance itself
from the administration's decision to invade Iraq, this apparent
involvement helps explain the otherwise baffling level of secrecy
surrounding the task force.

     It's interesting to note that the Cheney task force deliberations
took place in the first few months after the Bush administration came
to office - the same time period during which the new administration
was secretly formulating plans for toppling Saddam. Those early plans
were not publicly disclosed, but we know about them now due to the
publication of several insider accounts, including that of former
Treasury secretary Paul O'Neill. So, months before the attacks of 9/11,
the Bush White House was already considering toppling Saddam, and at
the same time it was also keenly studying Iraq's oil fields and
assessing how far along foreign companies were in their negotiations
with Saddam for a piece of Iraq's oil.

     It's also noteworthy that one person - Dick Cheney - was pivotal
both in advancing the administration's plans for regime change in Iraq
and in formulating U.S. energy policy.

     As CEO of oil services giant Halliburton Company, Cheney had been
alert to the problem of securing new sources of oil. Speaking to the
London Petroleum Institute in 1999, while still heading Halliburton,
Cheney had focused on the difficulty of finding the 50 million extra
barrels of oil per day that he said the world would need by 2010.
"Where is it going to come from?" he asked, and then noted that "the
Middle East with two-thirds of the world's oil and the lowest cost, is
still where the prize ultimately lies."

     Cheney's focus on the Middle East and its oil continued after he
became Bush's powerful vice-president. Within weeks of the new
administration taking office, Cheney was pushing forward plans for
regime change in Iraq and also devising a new energy policy which
included getting control of oil reserves in rogue states. His central
role in these two apparently urgent initiatives is certainly suggestive
of a possible connection between the U.S. invasion of Iraq and a desire
for the country's ample oil reserves - the very thing that is
vehemently denied.

     One reason that regime change in Iraq was seen as offering
significant benefits for Big Oil was that it promised to open up a
treasure chest which had long been sealed - private ownership of Middle
Eastern oil. A small group of major international oil companies once
privately owned the oil industries of the Middle East. But that changed
in the 1970s when most Middle Eastern countries (and some elsewhere)
nationalized their oil industries. Today, state-owned companies control
the vast majority of the world's oil resources. The major international
oil companies control a mere 4 per cent.

     The majors have clearly prospered in the new era, as developers
rather than owners, but there's little doubt that they'd prefer to
regain ownership of the oil world's Garden of Eden. "(O)ne of the goals
of the oil companies and the Western powers is to weaken and/or
privatize the world's state oil companies," observes New York-based
economist Michael Tanzer, who advises Third World governments on energy
issues.

     The possibility of Iraq's oil being reopened to private ownership -
with the promise of astonishing profits - attracted considerable
interest in the run-up to the U.S. invasion. In February 2003, as U.S.
Secretary of State Colin Powell held the world's attention with his
dramatic efforts to make the case that Saddam posed an imminent threat
to international peace, other parts of the U.S. government were
secretly developing plans to privatize Iraq's oil (among other assets).
A confidential 100-page contracting document, drawn up by the U.S.
Agency for International Development and the U.S. Treasury Department,
laid out a wide-ranging plan for a "Mass Privatization Program ...
especially in the oil and supporting industries."

     The Pentagon was also working on plans to open up Iraq's oil
sector. In the fall of 2002, months before the invasion, the Pentagon
retained Philip Carroll, a former CEO of Shell Oil Co. in Texas, to
draft a strategy for developing Iraqi oil. Carroll's plans apparently
became the basis of a proposed scheme, which became public shortly
after the war, to redesign Iraq's oil industry along the lines of a
U.S. corporation, with a chairman, chief executive and a 15-member
board of international advisers. Carroll was chosen by Washington to
serve as chairman, but the plans were shelved after they encountered
stiff opposition inside Iraq.

     Still, the prospect of privatizing Iraq's oil remained of great
interest to U.S. oil companies, according to Robert Ebel, from the
influential Washington-based Center for Strategic and International
Studies (CSIS). Ebel, former vice-president of a Dallas-based oil
exploration company, retains close ties to the industry. In an
interview in his Washington office, Ebel said it was up to Iraq to make
its own decisions, but he made clear that U.S. oil companies would
prefer Iraq abandon its nationalization. "We'd rather not work with
national oil companies," Ebel said bluntly, noting that the major oil
companies are prepared to invest the $35 to $40 billion to develop
Iraq's reserves in the coming years. "We're looking for places to
invest around the world. You know, along comes Iraq, and I think a lot
of oil companies would be disappointed if Iraq were to say `we're going
to do it ourselves' "

     Along Comes Iraq?

     How fortuitous. U.S. oil companies just happened to have billions
of dollars that they wanted to invest in undeveloped oil reserves when
Iraq presented itself, ready for invasion.

     Along comes Iraq, indeed.

     In the past 14 decades, we've used up roughly half of all the oil
that the planet has to offer. No, we're not about to run out of oil.
But long before the oil runs out, it reaches its production peak. After
that, extracting the remaining oil becomes considerably more difficult
and expensive.

     This notion that oil production has a "peak" was first conceived in
1956 by geophysicist M. King Hubbert. He predicted that U.S. oil
production would peak about 1970 - a notion that was scoffed at at the
time. As it turned out, Hubbert was dead on; U.S. oil production peaked
in 1970, and has been declining ever since. Hubbert's once-radical
notion is now generally accepted.

     For the world as a whole, the peak is fast approaching. Colin
Campbell, one of the world's leading geologists, estimates the world's
peak will come as soon as 2005 - next year. "There is only so much
crude oil in the world," Campbell said in a telephone interview from
his home in Ireland, "and the industry has found about 90 per cent of
it."

     All this would be less serious if the world's appetite for oil were
declining in tandem. But even as the discovery of new oil fields slows
down, the world's consumption speeds up - a dilemma Cheney highlighted
in his speech to the London Petroleum Institute in 1999. For every new
barrel of oil we find, we are consuming four already-discovered
barrels, according to Campbell. The arithmetic is not on our side.

     Particularly worrisome is the arithmetic as it applies to the U.S.
With its oil production already long past peak, and yet its oil
consumption rising, the U.S. will inevitably become more reliant on
foreign oil. This is significant not just for Americans, but for the
world, since the U.S. has long characterized its access to energy as a
matter of "national security." With its unrivalled military power, the
U.S. will insist on meeting its own voracious energy needs - and it
will be up to the rest of the world to co-operate with this quest.
Period.

     Canada plays a greater role in this
"keep-the-U.S.-energy-beast-fed" scenario than many Canadians may
realize. A three-volume report prepared by a bipartisan Congressional
team and CSIS, the Washington think tank, highlights how important
Canada is in the U.S. energy picture of the future. The report, The
Geopolitics of Energy into the 21st Century, notes that Canada is "the
single largest provider of energy to the United States," and that
"Canada is poised to expand sharply its exports of oil to the United
States in the coming years."

     Fine as long as Canada doesn't want to change its mind about this.
Well, in fact, Canada can't change its mind about this - a point
celebrated in the report. When Canada signed the North American Free
Trade Agreement (NAFTA) in 1993, we gave up our right to cut back the
amount of oil we export to the U.S. (unless we cut our own consumption
the same amount). Interestingly, Mexico, also a party to NAFTA, refused
to agree to this section, and was granted an exemption.

     The U.S. report points out that that, under NAFTA, Canada is not
allowed to reduce its exports of oil (or other energy) to the U.S. in
order to redirect them to Canadian consumers. Redirecting Canadian oil
to Canadians isn't permitted - regardless of how great the Canadian
need may be. Some outside observers, like Colin Campbell over in
Ireland, find the situation striking. "You poor Canadians are going to
be left freezing in the dark while they're running hair dryers in the
U.S.," says Campbell. It's a situation that comforts the U.S. senators,
congressmen and think-tank analysts who wrote the report. With obvious
satisfaction, they conclude: "There can be no more secure supplier to
the United States than Canada."

     Alas, for the U.S., not every part of the world is as pliant as
Canada. Most of the world's oil is in the Middle East. And while
different oil regions will reach their production peaks at different
times, the Middle East will peak last, underlying Cheney's point that
the region is where "the prize ultimately lies." Whoever controls the
big oil reserves of the Middle East will then be positioned to, pretty
much, control the world.

     But we're supposed to believe that, as the Bush administration
assessed its options just before invading Iraq in the spring of 2003,
the advantages of securing vast, untapped oil fields - in order to
guarantee U.S. energy security in a world of dwindling reserves and to
enable U.S. oil companies to reap untold riches - were far from mind.
What really mattered to those in the White House, we're told, was
liberating the people of Iraq.

     =====================

     Adapted from It's The Crude, Dude: War Big Oil, And The Fight For
The Planet, by Linda McQuaig, 2004. Published by Doubleday Canada.
Reproduced by arrangement with the Publisher. All rights reserved.

     Toronto-based political commentator Linda McQuaig is a past winner
of a National Newspaper Award and an Atkinson Fellowship for journalism
in public policy. Her column appears Sundays on the Star's op-ed page.