Armed Madhouse

by Greg Palast

  When fifteen Saudi Arabians flew airliners into American buildings, their victims’ families sued the kingdom’s Defense Ministry for indirectly buying the tickets for the terrorists. James A. Baker’s was the first law firm in the courthouse…for the Saudis.

  And, not least, as Baker himself bragged in describing his fancy legal work for the Republican party after the 2000 vote, he fixed the election for George Bush in Florida—as Bush’s lawyer. (See “The Best Little Legal Whorehouse in Texas,” page 136.)

  When I arrived in Houston, the planet-spanning man himself was away from his institute, doubtless at his other office at 1600 Pennsylvania Avenue. That’s correct. You may be wondering how lawyer for a foreign government gets his own desk next to the President’s—as far as I know, it’s never happened before. How it happened is worth a short chapter by itself, attached at the end of this one. (See “The Best Little Legal Whorehouse in Texas.”)

  No matter. Baker wouldn’t soil himself with the details I needed. I was looking for the anonymous authors of Iraq’s oil Options. When, after a year of schmoozing, I met one of the designers of Iraq’s future, I found in Amy Jaffe a preppy, talky Jewish girl with a Bronx accent like a dentist’s drill who, stranded in a cowboy world, poignantly wanted to be one of The Boys. She thinks she can accomplish this through fashion accoutrements—she showed me her alligator cowboy boots and rolled her eyes—“for Rodeo Day!” Lucky for me and my recorder, she did not learn from Baker and the boys Rule #1 for rulers: Shut up.

  Who was anointed to tell Iraq its “options”? Besides the notable exclusion of Iraqis in drafting their fate, the usual neo-con experts were let nowhere near the report. I met Amy in March 2005, after my meeting with Ari Cohen at Heritage in Washington. Cohen already knew his neo-con team was slipping, “The Bush administration is on the brink of snatching defeat from victory,” he told me, but he could lay these unfortunate events only to his “witches’ brew” of Saudis and their State Department quislings. When I asked Cohen about the James A. Baker group’s report he was clearly stunned by its existence and stung by his exclusion.

  As to excluding Ari Cohen, Amy had already told me, “He’s never been in the fucking oil industry and he doesn’t know anything about the oil industry.” The Oil Options group was no place for neo-con think-tank theorists. This was the real thing, laying out the real oil program for Iraq and putting it in the safe hands of a coterie of “consultants to the industry and retired oil company executives” and technicians.

  I asked her about Big Oil’s concern that neo-con plans for a sell-off of oil fields would fail to “enhance” OPEC. Amy added that U.S. oil companies also had a practical concern about privatization: They could get cut out of the action.

  There is no question that an American oil company or any [foreign] oil company wouldn’t be enthusiastic about a plan that would make it so that they’re going to privatize all the assets in Iraq with Iraqi companies and they [the IOCs] might get left out of the transaction.

  So “left out” is something Big Oil isn’t used to. If Bush leaves it to the Iraqis to vote on terms of a sell-off, the Iraqis might be foolishly tempted to keep the oil fields for themselves.

  A bigger-than-life portrait of Baker III glowered down, but Amy continued on. I was picking up from her that democracy could get out of control. Western oil companies want to cut deals to drill in Iraq, but

  Under a democratic, privatized system, with private Iraqi oil companies, that might not have happened.

  ExxonMobil and friends went through one big privatization and they didn’t like it at all:

  I mean, why would American oil companies want to go through the same thing like they went through in Russia? They invested billions of dollars and have had their assets either stolen or diverted.

  I see: Privatize the Iraqi fields, and it will be Russia Part 2, with cronies of our hand-picked regime sucking up the assets, with the big international players sliced out of the game. Nor did the Iraqis like how their oil ministry was run in the early days after the U.S. invasion:

  They don’t want it to have it be that just five people are stealing all the money and giving out awards…

  Big Oil didn’t like pay-to-play. In fact, under U.S. law, they couldn’t.

  Where does bringing democracy to Iraq come into the picture? For the oil companies, it doesn’t seem to.

  It’s in the interest of the Western oil companies to have a stable government.

  I thought of the Chairman of Entergy Corporation, the global power company, who said of investing in Peru, “They’ve got a good stable situation there, sort of a benevolent dictator, which means good, responsible leadership.”

  Not that the neo-cons are Jeffersonian democrats. As to Ari Cohen’s plans for privatization which the James Baker Institute crew totally excluded from their list of recommendations, she noted, “You have a country of 22 million people who believe the central government should control all the oil assets.” Jaffe’s the insider who complained to me about Wolfowitz shouting for democracy in Iraq while shoving privatization down their throats, “something that 99% of the people of Iraq wouldn’t vote for.”

  Her own preference? She echoed Phil Carroll’s allergy to ideologies:

  I’m working for James A. Baker [a Republican] and I used to work for Ed Morse [a Democrat]…. So whatever it is I’m telling you, I am telling you because I think it is right and there’s no ideology behind it.

  I didn’t see in the Options report any option but forms of state-owned oil monopolies. As Jaffe had observed in our interview, however, lowering prices is not necessarily their objective.

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

  But if you were the chairman of an oil company, Amy, you would never be put on a lie detector.

  PART 4

  JERKS, EUROS, THE HUBBERT HUMBUG AND MR. 5%

  Why Did Saddam Have to Go?

  It was a fine chat with Amy, but I still didn’t have an answer to the question that was just driving me crazy, what about the oil? Why did the oil industry promote an invasion of Iraq to get rid of Saddam?

  The question is basic but the answer is not at all obvious.

  We know the neo-cons’ answer: The ultimate target of their invasion was Saudi Arabia, which would be cut low by a Free Iraq’s busting the OPEC oil cartel. But Big Oil wouldn’t let that happen. The neo-cons’ privatization scheme ended up an unnoted smear under Amy’s alligator boot heels.

  The Texas-Washington axis of authority wanted Iraq to stay a good member of OPEC and not overproduce. Saddam, under U.N. restrictions, couldn’t bust his OPEC quota. So why get rid of him?

  I tested several theories from both Left and Right. There was the “Euro” theory, as in, Bush ordered up the invasion because Saddam threatened to switch oil sales from dollars to euros.

  Oh, please.

  The goin’-euro theory, an Internet special, just won’t die. George Bush, not Saddam, has been doing his best to push the dollar under the euro, and he succeeded (see “The Network” chapter for reasons why). There would be no point in Bush taking out Saddam for his boosting the President’s own goal of devaluing the dollar.

  The leading candidate for Cheney’s reason to get Saddam: We need Iraq’s oil and Bush and Blair sent us into Iraq to get it. In its most sophisticated form, this is the “Peaking Oil” theory. It’s compelling, it’s based on expert authority (the calculations of a top oil geologist, M. King Hubbert) and it’s thoroughly wrong. However, before we learn what the oilmen were telling Dick Cheney in private as the reasons Saddam had to go, we really should take a look at the theory that we went into Iraq to get its oil. A ride up “Hubbert’s Peak” will allow a clearer view of the real topic of this chapter: the geo-politics of petroleum.

  No Peaking: The Hubbert Humbug

  On March 7, 1956, geologist M. King Hubbert presented a research
paper that would, a half century later, become the New Gospel of Internet Economics, the Missing Link that would Explain It All from the September 11 attack to the invasion of Iraq.

  In his 1956 paper, Hubbert wrote:

  On the basis of the present estimates of the ultimate reserves of world petroleum and natural gas, it appears that the culmination of world production of these products should occur within a half a century [i.e., by 2006].

  So get in your Hummer and take your last drive, Clive. Sometime during 2006, we will have used up every last drop of crude oil on the planet. We’re not talking “decline” in oil from a production “peak,” we’re talking “culmination,” completely gone, kaput, dead out of crude—and not enough natural gas left to roast a weenie.

  In his 1956 treatise, Hubbert wrote that Planet Earth could produce not a drop more than one and a quarter trillion barrels of crude:

  We obtain a figure of about 1250 billion barrels for the ultimate potential reserves of crude oil of the whole world.

  That’s the entire supply of crude that stingy Mother Nature bequeathed for human use from Adam to the end of civilization. Indeed, our oil-lusting world will have consumed, by the end of 2006, about 1.2 trillion barrels of oil. Therefore, by Hubbert’s calculation, we’re finished; maybe in the very week you read this book we’ll suck the planet dry. Then, as Porky Pig says, “That’s all, folks!”

  But the pig ain’t sung yet. Planes still fly, lovers still cry and smog-o-saurus SUVs still choke the LA freeway. Why aren’t our gas tanks dry? Hubbert insisted Arabia could produce no more than 375 billion barrels of oil. Yet, Middle Eastern oil reserves remaining today total 734 billion barrels. And those are “proven” reserves—known and measured, not including the possibility of a single new oil strike or field extension. Worldwide, ready-to-go reserves total 1.189 trillion barrels—and that excludes the world’s two biggest untapped fields, which could easily double the world reserve. (One is in Iraq, the other we’ll get to in Chapter 4.)

  In all fairness to the Hubbert Heads, there’s a more sophisticated, updated version of Hubbert’s theory. This is where the “peak” concept comes in. In this version of the Hubbert scripture, we ignore his dead-wrong prediction of total crude available and look only at the up-and-down shape of his curve, the “peak.” The amount of oil discovered each year, Hubbert posited, will stop rising by 2000, then will crash rapidly toward zero when we will have used up our allotted 1.25 trillion barrels.

  We haven’t crashed or even peaked. Oil production has risen year after year after year and discoveries have more than kept pace. Nevertheless, like believers undaunted by the failure of alien spaceships to take them to Mars on the date predicted, Peak enthusiasts keep moving the date of oil apocalypse further into the future. In the new, revisionist models of Hubbert’s prediction, the high point in the curve of discoverable oil on our planet will come in a decade or so. Though we have a reprieve, goes the new theory, still, We’re running out of crude, dude! There’s only another twenty years left in proven reserves! Oh, my!

  “It’s true that there’s only twenty years’ supply left—and that’s been true for the last hundred years,” Lewis Lapham told me over a decent sauterne at Five Points. (He more often sups at Elaine’s, but I don’t rate that.) Lapham of Harper’s magazine is the only editor in the hemisphere with hard knowledge of the petroleum market, insight he inherited legitimately: His family helped found Mobil Oil, the back half of what is now ExxonMobil.

  He asked, Why in the world would oil companies, or any company, announce that there’s lots of its product out there? You’d bust your own market. It’s better to say the cupboard’s bare. As Lapham noted, we have been “running out of oil” since the days we drained it from whales.

  OPEC’s big headache before the war shut down Iraq’s fields was that there was way too much oil. We were swimming in it and oil prices stayed low. The last thing oil companies want is more oil from Iraq, any more than soybean farmers want more soybeans from Iraq. Increasing supply means decreasing price.

  This war is about the oil, but what about the oil? The Hubbert Peaksters think they know. They are convinced that Dick Cheney in his bunker is panicked that the world’s supply of oil is about to run out, and so to Iraq we go, to seize the last of it. Here’s the flaw in that argument: To believe that George Bush and Dick Cheney hustled us into Iraq to open up that nation’s untapped bounty of petroleum is to believe that these two oil Texans in the White House are deeply troubled that the price of oil will rise unless they get us more crude. But Dick and George get a rise out of the rise.

  Have we peaked? The planet is producing today twice as much as the maximum predicted in 1956 by the “Peaking Man.” But the political uses of holy-shit-we’re-running-out-of-oil! has yet to peak.

  Indeed, Bush and Cheney are more than happy to allow others to promote Hubbert Peak hysteria in the public. “We need Iraq’s oil” is used as a good bogeyman to get the public behind an invasion that promises to get Americans a fill-up for the family gas guzzler for less than a hundred dollars. Anti-war progressives seized on the Hubbert humbug as proof that Bush’s invasion was a war of “Blood for Oil.” Nuns, professors and rock stars were outraged. But the average American thinks, Blood for oil? That’s a BARGAIN.

  The Shell Game

  Hubbert’s predictions may have been astonishingly wrong but his little forty-page research report is, nevertheless, astonishingly important in understanding the mindset of Big Oil.

  Almost everything you need to know about Hubbert and the agenda behind his crucial 1956 study is contained on its cover page. The oil doomsday pronouncement is “Publication No. 95, Shell Development Company, Houston, Texas.” Hubbert was the chief Consultant on general geology for Shell Oil and his “end of oil” paper was presented to the Texas meeting of the American Petroleum Institute. All else flows therefrom.

  Every once in a while the landlords of the planet have to remind us to be grateful for their services. In 1956 it was Shell Oil’s turn and Hubbert was their man for the job. It was not a happy time for the oilmen of Texas. Shell and the other Seven Sisters, as Big Oil was then known, faced a heck of a problem: crude was cheaper than dirt—$2.77 a barrel, that is, a nickel a gallon—and sinking. Worse, they were finding more of the stuff all over the planet, meaning prices would fall further.

  Hubbert’s “Peak” Note: The total sum of oil is 1,250 billion barrels—which runs out in 2006. This chart assumed a low annual burn of oil.

  In March of that year, Hubbert presented the solution to his fellow oilmen at the API in Houston. He unveiled this magical chart, which I reproduce here in its original form as a public service:

  Look closely. When Hubbert spoke, oil reserves worldwide were zooming heavenward. Despite the tide of petroleum rising around us, Hubbert declared that oil discoveries in the USA had begun to peak “as recently as 1951 or 1952” and that the world’s reserves would follow not long thereafter. He didn’t need to wink. His oil industry audience understood what oil giant Shell wanted America to believe: Oil isn’t abundant, it’s a scarce commodity and therefore…

  1. It’s too cheap—so oil companies should, for the public’s own good, raise the price to conserve this precious resource.

  2. We need to find an abundant alternative to fossil fuel.

  3. We need to protect our access to dwindling sources of crude, by force if necessary.

  Shell Oil, through Hubbert, sought, successfully, to change the way America thought of oil’s price, alternatives to oil and access to oil.

  PRICE: The problem of falling oil prices was solved for Shell, brilliantly, in four years, in 1960, by the creation of OPEC. On paper, OPEC was created by national governments. If oil companies had created this cartel to fix prices, that would have made it a criminal conspiracy—cartels are illegal. But when governments conspire for the same purpose, the illegal conspiracy turns into a legitimate “alliance” of sovereign states. OPEC’s government cover makes the price-fixin
g perfectly legal, and Big Oil reaps the rewards.

  ALTERNATIVES: As to replacing fossil fuels, Hubbert had the answer: limitless nuclear power. His 1956 paper is not called “Peak Oil.” Its title is “Nuclear Energy and the Fossil Fuels.” His let’s-go-nuclear chart, call it “Hubbert’s Plateau,” is usually ignored. I’ll reproduce it here opposite.

  Note that Hubbert envisions a high, flat plateau of nuclear energy outstripping fossil fuels by the twenty-first century, providing us a comfy, electric economy for five thousand years. Hubbert’s Uranium Reich was longer than anything the Führer could have imagined. Who would supply all this nuclear fuel? Lucky for us that Hubbert’s company, Royal Dutch Shell, was about to announce the formation of its new mega-venture, “URENCO,” a uranium enrichment consortium.

  Hubbert’s Plateau

  ACCESS: Protecting our access to petroleum, a “peaking” resource, was Shell Oil’s urgent message. Hubbert’s paper was published in June 1956, not long after the CIA overthrew Iran’s Prime Minister Mohammed Mossadegh for having nationalized Shell’s and BP’s assets. The paper was released just one month before Gamal Abdel Nasser, Egypt’s President, seized the Suez Canal, the oil tanker passageway, and just months before a British-French-Israeli invasion force took it back. Hubbert’s Peak thinking helped provide a justification for war over this “strategic resource.”