Global Economy

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"Wolfowitz's Plot to Destroy OPEC" [2 newsclippings]

Friday, March 18, 2005
Wolfowitz's Plot to Destroy OPEC
And Why it was always Ridiculous
[From: Juan Cole Informed Comment www.juancole.com
18 March 2005]

Joe Conason presents some excellent reasons why Paul Wolfowitz should
not head the World Bank.

The BBC Newsnight reports the titanic struggle between the
Neoconservatives and Big Oil over Iraqi petroleum. If this story is
true, it is some of the best reporting to come out of the Iraq scandal
for months, and Greg Palast and his colleagues have scooped the
Washington Post and the New York Times.

It is a story that also has a bearing on Paul Wolfowitz's bid to
become chairman of the World Bank. I have some questions for him. Does
he want to reduce the Arabs to poverty? Is he hostile to the very
existence of OPEC and of producer cooperatives in primary commodities?
Does he favor the use of warfare by states to permit their
corporations to take over public energy resources in the Global South?
Are his economic policies going to be rooted in a desire to further
the interests of the Likud and other rightwing parties in the Global
South?

As Palast tells the story, the Neoconservatives (presumably Wolfowitz,
Perle and Feith) and the Department of Defense were dedicated to
privatizing the Iraqi petroleum industry as a key plank of their Iraq
project. They hoped that Iraq's privately-owned (presumably by
American petroleum corporations) petroleum industry would secede from
the Organization of Petroleum Exporting Countries (OPEC) and would
pump large amounts of petroleum, refusing to stay within the bounds of
the Iraq OPEC quota. By setting quotas for members, OPEC attempts to
keep the price of petroleum from falling too far or from oscillating
too wildly.

That there was a cult of privatization at the Pentagon has never been
in doubt. Iraq has been a socialist country since at least 1968 (and
had elements of socialism in the period of military rule 1958-1968).
Most major industries were publicly owned. Moreover, the Iraqi
population liked it that way. Opinion polls show that 80% of Iraqis
think the purpose of a government is to take care of people.

Paul Bremer, the second US civil administrator of Iraq is a fanatical
laissez-fairiste. The privatizers would set up private corporations to
sell you creek water and oxygen if they could get away with it. In a
BBC interview, Jay Garner alleged that the Department of Defense
dissolved the Iraqi army and sent it home, causing all of us no end of
trouble, because they were afraid that retaining a large Baath
institution like that would form an obstacle to radical privatization.
Bremer wanted to allow foreign companies to buy any firm in Iraq and
to be able to expatriate profits immediately. (The abolition of
currency regulations, advocated by Washington Consensus free
marketeers, contributed to the meltdown of the East Asian economies in
1997; Malaysia escaped devastation by thumbing its nose at the
privatizers and slapping on currency controls. It turns out that if
there are no regulations about currency transfers, speculators take
advantage of it; Surprise!)

Obviously, the real prize in privatization would be the petroleum
industry. No other state-owned Iraqi industries are worth much, and
will be difficult to sell to private owners because they are bloated
bureaucracies and inefficient.

The prospect of the Iraqi petroleum going into foreign hands, however,
impelled many Iraqis to begin sabotaging the pipelines, or to support
the saboteurs. Palast reports,


Mr Aljibury, once Ronald Reagan's "back-channel" to Saddam, claims
that plans to sell off Iraq's oil, pushed by the US-installed
Governing Council in 2003, helped instigate the insurgency and attacks
on US and British occupying forces. "Insurgents used this, saying,
'Look, you're losing your country, you're losing your resources to a
bunch of wealthy billionaires who want to take you over and make your
life miserable,'" said Mr Aljibury from his home near San Francisco.
"We saw an increase in the bombing of oil facilities, pipelines, built
on the premise that privatisation is coming."


Iraq should be able to produce 3 million barrels a day, but it has
often only done a million or a million and a half because of sabotage,
reducing the Iraqi government income from petroleum to only $10
billion or so a year, when it could have been $20 billion or more.

According to Palast, it was the Coalition Provisional Authority
officials from a Big Oil background, like Philip Carroll, the former
CEO of Shell Oil USA, who told Bremer "No!"

The US petroleum companies haven't been interested in owning Middle
Eastern petroleum for decades. Most Middle Eastern oil producers
nationalized their industries in the 1970s. The US companies moved
into refining and distribution, which is plenty profitable. Trying to
own the oil fields had long caused them a lot of trouble. The attempt
of Prime Minister Mohammad Mossaddegh to nationalize Iranian oil in
1951-1953 had led to a US/UK boycott of Iranian petroleum and
ultimately a CIA-backed coup that ended the last democratically
elected government in Iran in 1953. Since that time, Middle Eastern
peoples had become much more politically and socially mobilized, and
popular demands for ownership of national resources became irresistible.

(Max Boot, who thinks Middle Easterners are just Filipino peasant
villagers circa 1902--poor, illiterate, unconnected and politically
naive--exemplifies the basic Neocon fallacy. The Neocons haven't even
caught up to the 1950s or read Karl Deutsch on the social mobilization
of the Global South. People can't be occupied so easily once they are
urbanized, industrialized, literate, connected by modern
communications, and politically aware. This is why Boot and Wolfowitz
did not anticipate a long-term guerrilla war in Iraq, or how savvy and
effective it would be. They really think they are Lord Curzon dealing
with backward WOGs).

So the Neoconservative/ Department of Defense plan to privatize the
petroleum industry was swimming against history, and proved impossible
to implement because a) the Iraqis wouldn't put up with it and b) even
US Big Oil could see that it was a disaster waiting to happen.

The other thing wrong with the Wolfowitz/Perle/Feith plan to destroy
OPEC via Iraq is that it cannot be done. If they thought it could be
done, they are ignorant of the petroleum industry and also of basic
economics. About 80 million barrels of petroleum are produced in the
world each day (it fluctuates, so this figure is inexact). The Saudis
can produce as much as 11 million of that (they are expanding capacity
now to 12 or 13). The Saudis can, however, get along with only
producing 7 million barrels a day (maybe even less at today's prices).
Most oil producers use a lot of their own petroleum. The US, Russia,
China, etc., produce petroleum but then they consume a lot of it
themselves. The Gulf producers, in contrast, have small populations
and cannot absorb much petroleum use, so they are the ones who can
export in large amounts.

The Saudis are now and for the foreseeable future the major swing
producer. It takes them three days to gear up production from 7
million barrels a day to 11, or to ratchet things back down. They can
put 5 million of the approximately 80 million on the market or take it
off, virtually at the stroke of a pen. Between this ability and their
influence in OPEC, the Saudis have some ability to influence (but by
no means control) petroleum prices.

Iraq can only produce about 2.5 to 3 million barrels a day now if
there is no sabotage. With the investment of billions and lots of
security and rebuilding, they might get that up to 5 million a day
within 5 years. It would take them 15 to 20 years to have a capacity
similar to that of Saudi Arabia. In the meantime, OPEC countries will
probably increase their capacity by 20 million barrels a day,
completely offsetting any Iraq increases. Moreover, Iraq is a real
country, with a population of 25 million and many industries, and Iraq
will use a lot of its own petroleum. What it has available for export
will be only a portion. Iraq will never be the kind of swing producer
that Saudi Arabia is.

There are already a lot of countries that are not in OPEC and pay no
attention to quotas. They haven't destroyed OPEC, and one more (Iraq)
wouldn't, either. The cartel effect of OPEC is simply not that great,
and oil prices have fluctuated dramatically every decade since it was
formed. OPEC has mostly failed even to dramatically influence, much
less control prices. In 2004-5, Bush administration policies in Iraq
plus a rise in demand from China and India plus strikes and other
problems in places like Nigeria and Venezuela put the petroleum price
up to as much as $55 a barrel, whereas OPEC's target for many years
was $25 a barrel. The Neocons by their Iraq war have managed to double
OPEC's income, beyond even what OPEC wanted!

So Iraqi petroleum cannot destroy OPEC for the foreseeable future,
even if whoever was in charge of it wanted too. In fact, there is
every reason for any Iraqi government to want to keep petroleum
publicly owned, and to cooperate with OPEC in attempting to smoothe
out extremes in the price cycle.

Primary commodities suffer from big swings in prices. You see this in
coffee and cotton, too. There are booms and then busts and then booms.
If you are a producer, this rollercoaster ride is inconvenient and
could bankrupt you some years. High prices bring in more money but
also bring lots of new competitors who can only compete when the
prices are high because of natural disadvantages. Really low prices
are devastating. So coffee growers, petroleum producers, and other
primary commodity producers often form cartels in an attempt, not so
much to keep prices high, as to keep them from jumping all around.
With the exception of the DeBeers diamond racket in South Africa, most
cartels have only a minor effect on price cycles.

Now the Neocons are all becoming Greens and arguing for solar or other
forms of power in order to cut down on US oil dependence. This is code
for making sure the Arabs cannot use petroleum to influence the US in
the Arab-Israeli dispute. I'm all for getting off the carbon-based
treadmill. But petroleum has other uses than providing energy,
especially petrochemicals, and Arab producers are going to be rich off
such uses for decades or centuries.

The story Palast tells isone of crackpotism run wild, and it would be
more than tragic if it is what dragged us into the Iraq quagmire.

......................................................................

Secret U.S. Plans For Iraq's Oil
By: Greg Palast
Reporting for BBC Newsnight

03/17/05 - "BBC" - The Bush administration made plans for war and for
Iraq's oil before the 9/11 attacks sparking a policy battle between
neo-cons and Big Oil, BBC's Newsnight has revealed.

Two years ago today - when President George Bush announced US, British
and Allied forces would begin to bomb Baghdad - protestors claimed the
US had a secret plan for Iraq's oil once Saddam had been conquered.

In fact there were two conflicting plans, setting off a hidden policy
war between neo-conservatives at the Pentagon, on one side, versus a
combination of "Big Oil" executives and US State Department "pragmatists."

"Big Oil" appears to have won. The latest plan, obtained by Newsnight
from the US State Department was, we learned, drafted with the help of
American oil industry consultants.

Insiders told Newsnight that planning began "within weeks" of Bush's
first taking office in 2001, long before the September 11th attack on
the US.

An Iraqi-born oil industry consultant Falah Aljibury says he took part
in the secret meetings in California, Washington and the Middle East.
He described a State Department plan for a forced coup d'etat.

Mr Aljibury himself told Newsnight that he interviewed potential
successors to Saddam Hussein on behalf of the Bush administration.

Secret sell-off plan

The industry-favored plan was pushed aside by yet another secret plan,
drafted just before the invasion in 2003, which called for the
sell-off of all of Iraq's oil fields. The new plan, crafted by
neo-conservatives intent on using Iraq's oil to destroy the Opec
cartel through massive increases in production above Opec quotas.

The sell-off was given the green light in a secret meeting in London
headed by Ahmed Chalabi shortly after the US entered Baghdad,
according to Robert Ebel. Mr. Ebel, a former Energy and CIA oil
analyst, now a fellow at the Center for Strategic and International
Studies in Washington, flew to the London meeting, he told Newsnight,
at the request of the State Department.

Mr Aljibury, once Ronald Reagan's "back-channel" to Saddam, claims
that plans to sell off Iraq's oil, pushed by the US-installed
Governing Council in 2003, helped instigate the insurgency and attacks
on US and British occupying forces.

"Insurgents used this, saying, 'Look, you're losing your country, your
losing your resources to a bunch of wealthy billionaires who want to
take you over and make your life miserable," said Mr Aljibury from his
home near San Francisco.

"We saw an increase in the bombing of oil facilities, pipelines, built
on the premise that privatization is coming."

Privatization blocked by industry

Philip Carroll, the former CEO of Shell Oil USA who took control of
Iraq's oil production for the US Government a month after the
invasion, stalled the sell-off scheme.

Mr Carroll told us he made it clear to Paul Bremer, the US occupation
chief who arrived in Iraq in May 2003, that: "There was to be no
privatization of Iraqi oil resources or facilities while I was involved."

The chosen successor to Mr Carroll, a Conoco Oil executive, ordered up
a new plan for a state oil company preferred by the industry.

Ari Cohen, of the neo-conservative Heritage Foundation, told Newsnight
that an opportunity had been missed to privatize Iraq's oil fields. He
advocated the plan as a means to help the US defeat Opec, and said
America should have gone ahead with what he called a "no-brainer"
decision.

Mr Carroll hit back, telling Newsnight, "I would agree with that
statement. To privatize would be a no-brainer. It would only be
thought about by someone with no brain."

New plans, obtained from the State Department by Newsnight and
Harper's Magazine under the US Freedom of Information Act, called for
creation of a state-owned oil company favored by the US oil industry.
It was completed in January 2004, Harper's discovered, under the
guidance of Amy Jaffe of the James Baker Institute in Texas. Former US
Secretary of State Baker is now an attorney. His law firm, Baker
Botts, is representing ExxonMobil and the Saudi Arabian government.

View segments of Iraq oil plans at www.GregPalast.com/opeconthemarch.html.

Questioned by Newsnight, Ms Jaffe said the oil industry prefers state
control of Iraq's oil over a sell-off because it fears a repeat of
Russia's energy privatization. In the wake of the collapse of the
Soviet Union, US oil companies were barred from bidding for the reserves.

Jaffe said "There is no question that an American oil company ...
would not be enthusiastic about a plan that would privatize all the
assets with Iraq companies and they (US companies) might be left out
of the transaction."

In addition, Ms. Jaffe says US oil companies are not warm to any plan
that would undermine Opec, "They [oil companies] have to worry about
the price of oil."

"I'm not sure that if I'm the chair of an American company, and you
put me on a lie detector test, I would say high oil prices are bad for
me or my company."

The former Shell oil boss agrees. In Houston, he told Newsnight, "Many
neo-conservatives are people who have certain ideological beliefs
about markets, about democracy, about this that and the other.
International oil companies without exception are very pragmatic
commercial organizations. They don't have a theology."

Greg Palast's film - the result of a joint investigation by BBC
Newsnight and Harper's Magazine - will broadcast on Thursday, 17
March, 2005.

You can watch the program online - available Thursday, March 17 after
7pm EST for 24hrs - from the Newsnight website:
http://news.bbc.co.uk/1/hi/programmes/ne...efault.stm.

http://www.informationclearinghouse.info...le8294.htm