Armed Madhouse
Page 10
Let’s return to those prewar London meetings and Fadhil Chalabi. To rate a long-distance journey by Bush emissary Ebel, Fadhil Chalabi had to be someone special. He was in many ways more important than his fellow tribesman and ally, Ahmad Chalabi, the “Chicago” boy. Fadhil Chalabi was not only Saddam’s former oil minister but, more important, former Secretary General of OPEC. Yet, while perched at this, the top job at the oil industry’s peak, the Iraqi seethed. Fadhil Chalabi was sick with jealousy over Saudi Arabia. “OPEC is Saudi Arabia” is a phrase I’ve heard from a dozen oilmen. The Saudis alone set each nation’s oil production quota by brute authority of Saudi Arabia’s cash reserves. The Saudis had, since OPEC’s birth, assigned Iraq, despite its massive oil deposits, a humiliatingly small quota exactly equal to that of the despised Shia of Iran. Supposedly, this Iran-Iraq equality would prevent war between the two nations. It didn’t. But the low quota did keep Iraq from full access to its petro-wealth and the political power that comes with it.
Fadhil Chalabi left OPEC dreaming and scheming of an Iraq producing not just six million barrels a day (the neo-con hope) but twelve million barrels a day, exactly one million more than Saudi Arabia’s eleven. That would restore Iraq to its rightful place at the very top of the world of oil, dictating to the Saudis.
Possessed by this vision, Fadhil Chalabi is to OPEC as Captain Ahab was to Moby Dick: he would conquer it or kill it. And he certainly knew where to begin: by privatizing the oil fields of Iraq, then opening the spigots wide. And for that, he had U.S. troops, neo-con patronage and now, his protégé, the “nothing,” Ibrahim al-Ulum, ready to carry it out.
Swinging between the political arms of the two Chalabis, with a push from his father, the younger al-Ulum swung into place as oil minister, positioned to carry out, knowingly or not, the grandiose dreams of his mentor Fadhil Chalabi as well as the best-laid plans of Harold Rhode and the neo-conservatives. For a “nothing,” al-Ulum was doing pretty well for himself.
But immediately, there was trouble. The Americanized al-Ulum loved to talk to the western press. He began gabbing about his grand plans from the neo-con playbook. “Iraqi oil needs privatization,” he said. But, he added, that raised some “cultural” issues for Iraqis.
That was an understatement, to say the least. When word of al-Ulum’s plan to sell off the nation’s patrimony hit the street, all hell broke loose, literally. Falah Aljibury told me:
We saw an increase in the bombing of oil facilities and pipelines on the premise that privatization is coming. Insurgents and those who want to destabilize Iraq have used this, saying, “Look, you’re losing your country, you’re losing all your resources to a bunch of wealthy people; a bunch of billionaires want to take you over and make your life miserable, and the means to live for your children are going to be taken away from you.”
(The godfather of privatization, Ari Cohen, suspected Iraqis might get a bit testy when his theories were implemented. Prudently, for in-country work, he told me in his Russian grammar, “I left other people to get their ass to get shot off.”)
The Conoco/Halliburton executive McKee arrived in Baghdad from Houston in October 2003 to find pipelines on fire, explosions every day. Under al-Ulum’s amateur supervision, sabotage and corruption vied for supremacy, though they often combined: In the Northern zone, tribes that lost bids for Bremer’s pipeline security contracts showed their displeasure by blowing up the pipes.
Enough was enough. Oil privatization needed a bullet to the head and, the month he arrived, McKee ordered the hit.
McKee’s Bullet: The Secret Return of Plan A
Given that Ahmad Chalabi’s neo-con influenced crew of grasping privatizers had run amok in Iraq’s oil ministry, it was time for the adults in the game to put the State Department and oil industry plan, a state-run oil company, into writing. McKee ordered up a detailed blueprint to hand the ministry that would lay out for Iraq exactly what should be done with Iraq’s oil.
The industry drafting party would take place in Houston in November and December 2003. No Iraqis would be invited. Oil would remain a state enterprise whose output would dance to the tune of Saudi OPEC quotas.
Proving this new document existed, getting a copy of it and the story behind it became a close-to-pathological obsession for our investigations team in New York and London.8
* * *
Tribes of Iraq, Tribes of America
Six of the main Iraqi characters in this story share but three names: Ahmad and Fadhil Chalabi, wealthy exiled leaders of the invasion and their allies, the al-Ulums, and the oil industry spear-carriers, Mohammad al-Jiburi and Falah Aljibury (same name in Arabic, spelled differently in English).
Don’t let the melding of names confuse you. In fact, the common names are a key to understanding the tribal roots of Iraqi politics (and Iraqi gunfire). While you’ve heard much about religious differences among Iraqis (Sunni, Shia and Kurd), that’s nothing compared to tribal affiliation.
In Iraq, tribal rivalries are as deep as tribal rivalries in Washington—the Neo-con Nation, for example, versus the Big Oil tribesmen. To keep the players clear, here is a chart of tribal affiliations and their creeds:
ALJIBURY / AL-JIBURI CLAN
CHALABI / AL-ULUM CLAN
State Dept. Clan
Defense Dept.–Pentagon Clan
The “Witches’ Brew”
The “No-Brainers”
Big Oil
Neo-cons
State-owned oil
Privatized oil
Drill less oil
Drill more oil
OPEC supporters
OPEC smashers
323-page “Oil Options” plan A
101-page “Economy Plan” B
3-day “disguised coup”
Long-term occupation
“Everything as is”
Total makeover
Council on Foreign Relations
Heritage Foundation
James A. Baker III Institute
Project New American Century
Backed by Dick Cheney
Backed by Dick Cheney
* * *
Under the Freedom of Information Act, you’d think Americans would have a right to the economic schemes that our generals carried into war. But since regime change in Washington in 2001, documentation has been neither free nor informative. The State Department, the Treasury Department and the Defense Department took us on a six-month journey through national security Kafka-land. At first they stone-cold denied the Iraq Oil Plan ever existed.
We couldn’t track McKee, so we turned to Ed Morse. Morse is little known the public, but he’s one of the men to whom Washington looks for the winks and nods that indicate the wishes and wisdom of Big Oil. When he’s not tidying up policy for the Bush team, Morse, executive advisor to Hess Energy Trading, is raising money for Democrats. He was fielding as many as six phone calls a day from the administration for guidance on Iraq. The calls began more than a year before the invasion. Morse held the formidable title of Chairman of the Council on Foreign Relations–James A. Baker III Institute Joint Committee on Petroleum Security.
Morse sneers at “the obsession of neo-conservative writers on ways to undermine OPEC.” It may be a cute idea to smash the Arab oil cartel, he said, but Iraqis know that if they start pumping six million barrels a day, two million above their OPEC quota, they will “crash the oil market” and bring down their own economy.
And McKee of Conoco Oil knew it too. Installed in one of Saddam’s former palaces, McKee never lost sight of his Houston roots; and he was not going to let neo-con ideologues bring down the international petroleum industry. “Rob was very promotive of putting in place a really strong national oil company,” Morse told me. McKee’s industry was fed up with the damage to the petroleum flow caused by the neo-cons playing get-the-Saudis in Iraq’s oil patch. Privatization was out of the question. Morse would say no more.9
Our big break came when I reached Amy Jaffe, first in Amsterdam, then
at her lair at James A. Baker’s think tank in Houston. I dropped Ed Morse’s name and others, and Amy convinced herself I had authority to know about McKee’s request for a blueprint for Iraq’s oil, its secret drafters, contents and directives to the occupied nation—and I saw no reason to disabuse her of this misimpression. Besides, if America has a government of the people and by the people, then I, presumably one of the people, should have a copy of the Oil Plan if Jim Baker gets one.10 Governments don’t keep secrets to protect the public, but to deceive the public.
I asked Amy what her draft was called: I wanted to know if it was the same as mine. In fact, I didn’t have the title, nor the document, and I didn’t know if it even existed. Politely, Amy gave it away: Options for a Sustainable Iraqi Oil Industry.
Once we were able to confront the State Department with the exact title and authorship, coupled with a threat of legal action, the official keepers of the Bush administration’s secrets relented. On July 1, 2004, State finally handed over Options for a Sustainable Iraqi Oil Industry.
On the cover, the plans carry the byline of a consultant contractor, BearingPoint. The substantive designers of the strategy had modestly removed their names. The Washington, DC, consulting firm’s logo stayed on the cover, but it was crafted in Houston, under the tutelage of oil industry experts—including, we discovered, Donald Hertzmark, an advisor to the Indonesia state oil company, and Garfield Miller of Aegis Energy, advisors to Solomon Smith Barney, all hosted by Jaffe at the James A. Baker III Institute.
Big Oil’s Plan for Enhancing OPEC
This confidential plan, written for State Department consultants by a group from the James Baker Institute that included oil company executives, promotes a state-owned oil company for Iraq to “enhance a government’s relationship with OPEC.”
“Contents Confidential”: Big Oil’s Plan on Paper
The 323-page multi-volume Options for Oil document begins with the expected dungeons-and-dragons warning:
The report is submitted on the understanding that [the State Department] will maintain the contents confidential.
The Iraqis will have a choice of seven options for their oil—all of them the same: seven flavors of state-owned oil companies. Not one “option” included the Pentagon’s page 73 OPEC-threatening privatization.
OPEC-busting privatization was simply not an option; but that’s not to say that the Iraqis would be allowed to choose freely from the options given. Iraqis were warned away from the Saudi Arabia “Aramco” model. Aramco used to be known as the “Arab-American Oil Company” until the House of Saud expropriated the U.S. share in 1980. Today, notes the Options paper with disapproval, no infidels are allowed to own any part of the production fields on holy property (the oil fields). Big Oil will not let that be repeated in the unholy land of Iraq. Such an attempt, the oil consultants warn, will result in starving Iraq of investment capital.
Instead of the Saudi model, the Options crew touts the happy outcome in the “Stans,” the old Soviet Central Asian republics, as a good model for Iraq.
Countries with less attractive geology and governance, such as Azerbaijan, have been able to partially overcome their risk profile and attract billions of dollars of investment by offering a contractual balance of commercial interests with the risk contract.
Translation: Azerbaijan’s looney tunes dictator demands exorbitant kickbacks for the crap oil he sells from a bad location; however, he has brought in the big money from big oil by serving up his nation’s resources in sweetheart deals.
The Stans (Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan) knew how to make their fields seductive to Big Oil via Profit Sharing Agreements (PSAs). Through PSAs, Western oil giants possess and suck up oil fields without the untidy bother of seizing official ownership. National governments hold nominal titles to their fields, which mollifies the patriotic citizenry; but the actual pumping and piping of the crude, for an appropriate share of the take, is handed over to what the paper calls “IOCs,” the international oil companies.
But what is an “appropriate” share for the IOCs? (Note there are no “LOCs” or local oil companies.) There’s the happy case of Kazakhstan, which obtained more foreign investment in oil than any other former Soviet state, notes the Options report with favor. In 1996, the nation received a quick $120 million in the first sale of a production share to an outfit called “Hurricane Hydrocarbons.” Not mentioned in the report is that, in 2005, Hurricane flipped its share to the Chinese government for $4.2 billion—a 35,000% gain. The Kazakh people got none of it. Mobil Oil (now ExxonMobil) also bought a share of the Kazakhstan action after, it seems, the company’s broker bought a share of President Nursultan Nazarbaev. About half of Mobil’s $51 million payment to the “broker” ended up, according to Justice Department papers, in the Swiss accounts of the president and oil minister. ExxonMobil says it acted “in an ethical manner,” unaware of where its money ended up. (“Ethical” may have a special meaning in the oil industry.) The broker’s defense is noteworthy: In 2006, his lawyer’s asserted that he was “working for… United States government agencies.”
But woe to Iraq should it make its fields available for “profit sharing” with U.S. companies on terms less favorable than the lubricated deals with Kazakhstan and Azerbaijan. The Options committee has a stern warning against attempting to squeeze IOC profits:
Countries that do not offer risk-adjusted rates of return equal to or above other nations will be unlikely to achieve significant levels of investment regardless of the richness of their geology.
In other words, give it up like Azerbaijan or eat your oil.
OPEC Enhanced
But the Iraqis know that. They know about the consequences of “inadequate regard for the risk borne by IOC contractors.” Don’t give IOCs fat “profit shares” and they walk. Iraqis don’t need a report from Houston to tell them that. Inclusion of the point in the report was just an unfriendly reminder. The teeth and guts of the Options is focused on one directive: ensuring Iraq would establish an absolute government monopoly on oil exports. Why were the standard bearers of Western capitalism, Texas oilmen, so insistent on Iraq creating a state-owned national monopoly? On page 15, they get to the point:
A single state-owned company… enhances a government’s relationship with OPEC.
“Enhances a government’s relationship with OPEC”? You can enhance your relationship with your wife with flowers, your children with affection and your God with prayer. But how does a government enhance its relationship with an oil cartel by creating a state-owned oil monopoly? Just one way: Only through the unique power of government monopoly can a nation hold back production to the OPEC quota.
U.S. oil majors get very excited when they see an OPEC member “enhance its relationship” with the cartel, and for good reason. The latest enhancement doubled OPEC’s benchmark price for crude—which also doubled the price Exxon and its comrades may charge for crude pumped from Texas and Alaska, not just from Saudi Arabia. OPEC’s 2006 prices produce a windfall of approximately $48 billion a year from sales of oil produced in the U.S. Altogether, the windfall for oil companies taken from U.S. customers totaled $305 billion over prewar prices in the first three years since “Mission Accomplished.” “Enhancing” OPEC, then, strikes one as an odd recommendation for a U.S. policy guide. But then, the report was supposed to be confidential; and it was born and bred at James A. Baker’s institute.
Rodeo Day and No Ideology
The James A. Baker III Institute is constructed a bit like a church or mosque, with a large echoing rotunda under a dome at its center, encircled by memorabilia and photos of the Great Man himself with the world’s leaders, about evenly split between dictators and democrats. And there is the obligatory shot of a smiling Nelson Mandela shaking Baker III’s hand. (Mandela is not so impolite as to remind Jim that he was Reagan’s Chief of Staff when Reagan coddled the regime that kept Mandela imprisoned.)
For tax purposes, it’s an educational institute,
and looking through the alarm-protected display cases along the wall was unquestionably an education. You could virtually write the recommendations of the Options for Iraqi Oil report by a careful inspection of the trinkets of Baker’s travels among the powerful.
There is the golden royal robe given Baker by Kazakh strongman Nazerbaev, the one who shared in the $51 million payment from ExxonMobil—a James A. Baker client—and alongside it a jeweled sword with a note from Nazerbaev, “Jim, there will always be a slice for you.” (I made that up.)
Who is this James A. Baker III that he rates a whole institute, and one that will tell Iraq its oil future? Just some highlights:
In 1990, as Secretary of State to Bush Sr., Baker sent a message to Saddam Hussein giving him the go-ahead to invade Kuwait.
When Bush Sr. was unemployed, Baker found the ex-President work as an arms dealer. Baker found a job for Junior, too, before he entered the Oval Office.