Another Oily Setback for Washington

Another blow has been dealt to the United States and its efforts to realign Iraq’s oil industry after a series of attempted suicide boat bomb attacks on Saturday on the key oil facility at Khor al-Amaya and on four oil tankers waiting to load at the main Basra terminal nearby in the south of the country.

Three US sailors died as they battled to fight off the attackers, and exports from the south were temporarily halted, further exposing the risks to Gulf Arab monarchies who produce nearly half of the world’s supplies.

What is alarming to the US is that the attacks mark the first time that the US military in Iraq has faced suicide bombers on boats; it was also the most serious attack yet on the oil industry. The incident is expected to cause crude prices to soar even higher, and is a further setback for the long-term goals of the US to ensure access to steady, secure supplies of inexpensive crude oil and to start playing a decisive role in oil markets at the expense of the Organization of Petroleum Exporting Countries (OPEC).

Media reports say that the delay alone has cost Iraq 1 million barrels a day in lost exports – or about US$110 million in revenue. The smaller Khawr al-Amaya platform, which handles about 700,000 barrels a day, reopened in Sunday morning while exports from Basra resumed on Monday.

Risky business
Pumping and transporting oil in Iraq today is risky business, endangering the lives of foreign oil workers. Halliburton, the US construction giant that has benefited so handsomely from oil contracts in Iraq, has seen 29 of its own employees and contractors killed.

Output is still lower than on March 20, 2003, when US and British forces launched the invasion of Iraq, while oil prices are one-third higher. The US benchmark West Texas Intermediate closed last week at $37.43 a barrel, compared to last year’s average price of $29, while the OPEC reference price basket stands at around $32, up from the 2003 average of $28 and the 2002 average of $24.

Iraq’s oil output stands at just over 2 million barrels a day, in a world that consumes 40 times that amount, and the remaining OPEC members – especially Saudi Arabia – have the ability to increase short-term production to meet the market’s demands.

The invasion and occupation “represent a fiasco for a huge investment”, Francisco Mieres, a Central University of Venezuela graduate school professor who specializes in the oil economy, told IPS. “The United States hoped that a year [after the start of the war], Iraqi output would exceed 3 million barrels a day of crude oil that it could purchase for $15 a barrel,” he added.

Although US companies have obtained “a share of the Iraqi oil business virtually for free”, for the US, “the cost of guarding Middle East oil is extremely high”, said Mieres. Prior to the invasion, “the Pentagon was already spending $60 billion a year maintaining its military presence in the Middle East. Although Saudi Arabia is selling crude to Washington at a discount of a dollar a barrel, military expenses drive up the actual cost of each barrel to around $200 for the United States,” he argued.

The invasion has added $87 billion a year to the US defense budget at a time when the administration faces a public account deficit, Mieres pointed out. The average US citizen is paying for the disruption in the oil industry: petrol now costs them $1.76 a gallon, 30 cents more than in March 2003, and prices are expected to continue rising before the November elections in which President George W Bush is seeking re-election.

Democratic presidential hopeful John Kerry has even cracked jokes, saying gas prices are rising so high that when Bush and Vice President Dick Cheney leave the White House in January, they will have to share a taxi.

Obstacles and controversies
On the oil front, “the United States obtained a military victory but a political defeat, because all signs indicate that soon there will be neither abundant oil nor low prices – and particularly not in Iraq,” Víctor Poleo, another professor who specializes in the economy of oil, told IPS. “International oil prices will be dictated by scarcity. What will abound are conflicts over oil,” said Poleo.

Nor has the purported military victory “brought dividends for the United States in OPEC, which has not recognized the Iraqi Interim Governing Council and has given it only a voice but no vote in its meetings,” said Mieres.

OPEC is made up of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Baghdad is excluded from the group’s quota system and from decisions on increasing or cutting output. “Even Saudi Arabia … is distancing itself from Washington,” said Mieres. Before an OPEC meeting in March, Bush called the leaders of several Arab oil-exporting countries to urge them to boost production, but OPEC said no.

The strategy of using Iraq as a front man for the US within OPEC has not worked. But it has brought lucrative business to US companies, especially “ones that have ties with the ‘oil directorate’ that is governing in Washington,” said Poleo.

These companies include Halliburton, of which Cheney was chief executive officer before becoming vice president; ChevronTexaco, where Bush’s National Security Adviser Condoleezza Rice was formerly an executive, and UNOCAL, Saic and Bechtel, which also have close ties to the Republican party.

Halliburton is emblematic because its subsidiary, Kellogg, Brown & Root (KBR) , was awarded some $8 billion worth of contracts in Iraq, including a $1.2 billion deal for repairing oil industry infrastructure in the country’s south.

The deals have not been without controversy. KBR has announced that it will reimburse the government $27.4 million that it overcharged for supplying meals to US troops. And some media have reported that KBR employees have taken bribes worth up to $6 million.

But the biggest obstacle to the restoration of oil infrastructure has become the Iraqi resistance, which is mounting an ever-greater number of attacks on the occupation forces and on Westerners in general.

Companies from other nations, like Russia’s Lukoil and TotalFinaElf from France, which had negotiated contracts for exploration and drilling with the Saddam Hussein regime (1979-2003), “are still there, but just barely”, said Mieres, a former Venezuelan ambassador to Russia.

On April 12, 12 Russian oil workers were kidnapped by the Iraqi resistance, and released the next day. Moscow then recommended all Russians and Ukrainians in Iraq – most of who are working in the oil industry – leave the country.

Lukoil, meanwhile, is once again discussing with authorities in Baghdad the question of developing the West Qurna-2 field in southern Iraq, which reportedly contains 6 billion barrels, or 5 percent of Iraq’s total reserves.

But while waiting for the day when it can begin pumping oil there, Lukoil has been supplying petroleum by-products to Iraq. In March it signed a contract to sell Baghdad 180,000 tons of petrol (1.3 million barrels) and 130,000 tons of diesel quarterly – an illustration of the poor state of Iraq’s refining capacity.

“Geopolitics by force has brought a cruel paradox,” said Poleo. “Cheney and [Defense Secretary] Rumsfeld’s soldiers, who are Halliburton soldiers, are destroying Iraq, and Halliburton engineers, who are Cheney-Rumsfeld engineers, are rebuilding it.”

Meanwhile, more sabotage and bombings are expected in Iraq, with US officials warning they anticipate violence to escalate in the weeks leading up to the handover of sovereignty on June 30, particularly now that it is clear Washington will retain considerable powers, especially in security matters.