Private Empire: ExxonMobil and American Power

by Steve Coll

  Perhaps, then, the invasion of Iraq would be a war for oil in a geopolitical sense, for the purpose of increasing Iraqi oil production from the moribund levels of the Saddam Hussein era, and by doing so reducing world oil prices and America’s dependence on Saudi Arabia. In the run-up to the invasion, a few conservative thinkers floated versions of this rationale, inflamed in part by evidence of Saudi Arabia’s support for Islamic radicals such as those responsible for the September 11 attacks. But although Iraq had large untapped reserves of 115 billion barrels or more, its daily production amounted to only 2 or 3 percent of the world’s total. After a U.S.-led invasion, even if all went well, it would take a decade or more to double Iraqi production to 6 million barrels per day, and even then Iraq could not hope to challenge Saudi Arabia’s dominance as the world’s most influential “swing producer” and price setter in oil markets, a producer able to raise or lower output as market conditions demanded. Saudi production capacity would still likely be twice that of Iraq’s.4

  Nonetheless, as the war befell them, even Iraqis with a sophisticated understanding of the global oil economy remained suspicious about American motives. They did not believe, necessarily, that the United States intended to steal their country’s reserves directly, but they regarded Iraq’s oil as an essential context for the American invasion. History influenced them; without question, oil grabs had shaped Western intervention in the Middle East in the past. “The First World War was not about oil,” said Tariq Shafiq, who would help to draft Iraq’s postinvasion oil law. “But the loot to the victorious winner was the oil concessions in the East. The intention was not there, but that was the obvious outcome. Today with the oil being really the core of our civilization . . . you would expect that oil was a factor.”5

  From its thunderous opening salvos in the early hours of March 20, 2003, the American-led invasion of Iraq did unfold in ways that exacerbated such doubts, particularly among Iraqis. On their initial drive to Baghdad, American tanks and Jeeps refueled at depots called Exxon and Shell. The decision to choose those code names might be dismissed as the tone-deaf error of midlevel staff in the Pentagon’s bureaucracy. It proved to be a signal of a deeper and persistent ambiguity.

  Talking points written at the National Security Council and handed out to American officials charged with making contact with Iraq’s oil bureaucrats during the early days of the invasion instructed them to emphasize, “We’re not here for the oil; the oil belongs to the Iraqi people.” Paul Bremer, the head of the Coalition Provisional Authority, or C.P.A., and the de facto regent of the country until 2004, declared that Iraq’s “natural resources should be shared by all Iraqis” and that revenues from the sale of oil should be placed in transparent bank accounts to create a “humane social safety net” for the Iraqi people. In private, however, officials within Bremer’s occupation authority wrestled over the “organizational mechanisms,” as Douglas Feith had put it, that would govern Iraq’s postinvasion oil industry.6

  Standard Oil first invested in what became the Iraq Petroleum Company in 1928. By the 1960s, international oil companies, including Esso, the ExxonMobil precursor, still owned a share of Iraq Petroleum. Iraq later nationalized its oil industry and organized state-owned firms, akin to Saudi Arabia’s Aramco. In its heyday, the flagship Iraq National Oil Company and its affiliates were highly professional, led by Iraqi engineers trained in the United Kingdom and the United States. Under Saddam Hussein, however, the state-run oil complex atrophied. By the time of the U.S.-led invasion, a few aging technocrats held Iraq’s oil infrastructure together with proverbial gum and paper clips. The complex’s maintenance problems ran so deep, “you could have brought the whole of ExxonMobil out there and they wouldn’t have been able to operate that thing worth a damn,” said Philip J. Carroll Jr., a former president of Shell U.S.A., who was appointed by Secretary of Defense Donald Rumsfeld to serve as Paul Bremer’s first senior oil adviser.7

  Even before the American invasion, it was clear, at least to some Iraqi exiles and American war planners, that a post-Saddam Iraqi government would have to consider whether to invite international oil companies to invest and help solve these deep-seated infrastructure problems. If a “liberated” Iraqi government wanted to draw on large sums of international capital to revitalize oil production, it would probably have to give up at least some equity oil reserves in return, by signing production-sharing contracts with international oil majors or through outright privatization. And yet allowing foreign companies to own Iraqi oil would undermine the Bush administration’s public narrative that the war would not reduce Iraq’s sovereign control of its natural resources. A desperate Saddam Hussein, toward the end of his time in power, had signed production-sharing contracts with Russian and Chinese companies, but those agreements had never been implemented. Otherwise, no Iraqi government had allowed outside oil ownership in four decades. Some financially and politically weak nations elsewhere still accepted production-sharing contracts—Azerbaijan, Indonesia, and Chad were among them—but such deals typically generated controversy, and they had essentially been banished as a contract genre in the Middle East.

  Bush administration war planners anticipated this dilemma as they worked in secret before the conflict. The Oil and Energy Working Group of the Future of Iraq Project, a State Department planning body, noted in a paper written early in 2003 that postwar Iraq would require foreign investment “on the terms that best, rapidly and significantly increase [oil and gas] production,” but that Iraqi privatization schemes or production-sharing contracts could “engender opposition from those who see this as selling out to foreign oil companies.”8

  Some free-market conservatives within and around the Bush administration saw no reason why a post-Saddam Iraqi government should feel embarrassed about trading some oil reserves for access to foreign capital and technology. In their view, all countries were better off if they privatized their economies to the greatest possible extent. “Privatization works everywhere,” a paper published by the Heritage Foundation in 2002 declared. Its authors urged the Bush administration to work with Iraqi opposition leaders at once to “prepare to privatize government assets” after Saddam’s overthrow.9

  In Baghdad, immediately after the invasion, Thomas Foley, a business school classmate of George W. Bush’s, organized a cell of privatization enthusiasts inside Paul Bremer’s C.P.A.; Foley and his colleagues pushed plans for a “broad-based, mass privatization program” even before a transitional Iraqi government could be established. Iraqi technocrats who served as caretakers at the oil ministry in that chaotic spring and early summer of 2003 following Saddam’s fall were stunned by the radicalism of some of the ideas the arriving Americans proposed. Pentagon planners suggested that Iraq should consider withdrawing from O.P.E.C. “This was part of the neoconservative view: Why have Iraq in O.P.E.C.?” recalled one American official involved. “‘Let’s break the cartel!’” The idea seemed preposterous to experienced Middle East hands, as such a proposal would only confirm ordinary Iraqis’ worst fears about American intentions. State Department opponents of the proposal sought to dismiss it “out of hand,” an official involved recalled. And yet, the idea “kept resurfacing.”10

  Pentagon officials also suggested that Iraq’s oil ministry look into shipping crude down “the Haifa pipeline,” as they referred to it. The pipeline had been constructed in 1934 to serve territory that eventually became part of the state of Israel. It ran from Iraq’s oil-producing region around Kirkuk through Jordan to modern Israel’s coastal city of Haifa. It ceased operations after Israel’s birth in 1948, but it was marked on old maps.

  After the invasion, Michael Makovsky, a member of the Pentagon’s Iraq oil planning team under Feith, chaired weekly telephone conferences with American oil advisers in Baghdad. Late in the spring of 2003, Makovsky asked that inquiries be made at Iraq’s oil ministry about the old pipeline’s status. Was it operational? Could it be repaired or placed into service?

  The assignment fell to
Gary Vogler, a West Point graduate and former Mobil Oil executive who had entered Baghdad with the first wave of American civilians as part of the oil advisory team led by Phil Carroll. Vogler considered himself to be “politically naive.” In the first weeks after the invasion, he established a strong working relationship with Iraq’s interim oil minister, Thamir Ghadhban, a career ministry engineer who had been jailed briefly by Saddam but who had stayed and survived his reign. One day, Vogler traveled to the oil ministry and found Ghadhban at his desk, juggling telephones.

  Vogler asked about the pipeline to Haifa. Ghadhban looked at him icily. “There are a lot of people in my organization, in the ministry, and throughout the country, who feel like the only reason why you guys came into this country is to get oil out to Israel,” he said. “If I go out with a question like that, I’m only going to solidify their viewpoint.”

  “Forget I asked you that,” Vogler said. “Don’t follow up on it unless I ask you again.”

  The queries from Makovsky, in Washington, continued. Vogler resisted the questions, asking why Makovsky kept making such an issue of a pipeline that had never been discussed in prewar planning. The purpose of the questions seemed vague. “Put in writing what you need and why you need it,” Vogler requested.

  In an interview years later, Makovsky said he could not recall discussing the pipeline with Vogler, but he did remember being asked to review the pipeline’s status by superiors at the Pentagon. “The Israelis were at one point interested in this at the beginning of the war,” he recalled. “I was asked by an official to look at this.” He investigated and wrote a brief report. “There were a lot of things I looked into that didn’t go anywhere. I’m not aware of anyone in the U.S. government who was advocating building a line from Iraq to Israel. . . . I never advocated anything like that.” Douglas Feith, too, said the idea surfaced with “lower-level Pentagon officials” and he “never supported the proposal.”11

  Makovsky clashed regularly with Vogel; he felt that the former Mobil executive was unreliable. A third American official who participated in the pipeline discussions in 2003, and who respected both Vogler and Makovsky, recalled that Makovsky’s true purpose was to find an export route for Iraqi oil that would bypass Syria and benefit Jordan, not Israel. “Mike’s view is that you can’t have it go to Israel—he would like that, but he realizes you can’t have that,” this official recalled. Still, Makovsky was, in this participant’s estimation, tone deaf. “What does he always refer to it as? ‘The Haifa pipeline.’” Makovsky said later that aiding Jordan and undermining Syria was indeed the reason he was at times animated about the possibility of resurrecting the pipeline. He continued for years afterward to write articles supporting a pipeline route from Iraq to Jordan, arguing that it would create “an opportunity to export oil both to Asia, where demand is growing, and to Europe and the United States.”12

  Eventually, unhappily, Ghadhban made the inquiries demanded by his American liaisons. He reported back with evident satisfaction that the pipeline in question barely existed anymore; it had not been maintained for decades and had been pulled apart in places by scavengers. There was nothing, realistically, that could be done for now.

  These awkward early exchanges coincided with high-level reviews of how Iraq’s state-owned oil industry should be restructured to attract foreign investment and improve production rates. Philip Carroll, the senior adviser, was a patrician and a deeply experienced peer of Vice President Cheney’s in the oil business. After running Shell’s American division, he had been recruited to turn around troubled Fluor Corporation, a government contractor and Halliburton competitor. At the time of the Iraq invasion, Carroll held a top secret security clearance from his Fluor days. He was a close social friend in Houston of George H. W. and Barbara Bush, the American president’s parents. Carroll had reluctantly accepted a six-month Baghdad assignment at Rumsfeld’s request; he considered it a call to national service that he could not refuse, although it would cost him about a half million dollars in foregone private sector compensation and require him to live in spartan conditions in Iraq’s Green Zone.

  Carroll waged a rearguard battle in Baghdad against the Bush administration’s more radical privatization advocates; he made clear that he would resign rather than participate in a precipitous sell-off of Iraq’s oil assets, according to one career intelligence analyst who worked with him at the time. Carroll, too, was a believer in free markets, but he knew the Middle East and he felt that the United States had no choice but to go slowly and defer to Iraqi decision making. Iraq’s nationalism, coupled with the visible trends toward state ownership in the global oil industry, suggested that postwar Iraq should probably reestablish its state-owned oil company, at least as a first step. Carroll’s personal view was that if he were running Iraq—“And believe me, I never want to do that”—he would build up a strong nationalized oil company and then later invite private international oil companies to invest as partners in Iraq’s fields. That “mixed model” would free up Iraq’s national revenue for “crying needs” in education, health care, and other social sectors. “If you bring in Exxon, with a very fat checkbook, they could basically throw money at something and get things done very quickly,” Carroll said. Iraq would probably have to give up some oil ownership in exchange for such investment capital, but it would also gain access to the latest industry technologies and training. In any event, Carroll felt that he should not impose his private opinion on the interim Iraqi administration. He wanted to help Thamir Ghadhban and other key Iraqis “at least begin to be thinking” about their options for reorganizing their country’s oil industry.13

  He advocated approaches that might favor private oil companies in the longer run, however. On June 26, Carroll wrote a memo entitled “Future Policy Issues Concerning the Ministry of Oil,” addressed to Paul Bremer. He noted that raising Iraqi production to its full capacity of about 6 million barrels per day might require as much as $30 billion or more in long-term capital investments. This raised the question of “when to invite new upstream discussions with prospective partners” from the oil industry. Carroll wrote that the next twelve months would not be “too early to start talks.” He foresaw “an extended period to exchange concepts and to establish relationships.”

  Under the heading “Privatization in the Oil Sector,” he continued, “Needless to say, this will be a very contentious issue within the Ministry, the government, and the population at large.” He argued against a precipitous sale of stock in Iraqi oil enterprises. A trust fund for Iraqis, “along the lines of the Alaskan model,” whereby regular cash royalties were paid to citizens, would be preferable. He also suggested that it “would be in the U.S. interest” to develop an educational program for employees of Iraq’s oil ministry—specifically, “comers” who could be trained in the United States. Such a program “would not only meet the ministry’s needs but [would] begin to build a group of future leaders who would have a taste of U.S. life.”14

  Carroll’s memo accurately forecasted the Bush administration’s oil policy in postwar Iraq. The policy was constructed to protect Iraqi decision-making prerogatives but also to account for enduring American interests, including those of U.S.-headquartered oil corporations. As Iraq’s anti-American insurgency intensified after 2004, the Iraqi state’s capacity to manage its own affairs gradually weakened. Iraq’s potential to oversee oil production on its own, which would have been challenging in any circumstance, gradually became all but impossible. International capital and private oil companies would be required to rescue Iraq’s position whenever the internal violence generated by the American invasion calmed. As Tariq Shafiq had observed about the First World War, access by Western companies to Iraq’s oil did not need to be an explicit cause of the Bush administration’s invasion to become an outcome.

  Douglas Feith had been thinking about global oil security issues since the first term of the Reagan administration, when he worked on energy policy as a young staffer at the National Securit
y Council. He considered himself something of a contrarian on the subject. After the oil shocks and embargoes of the 1970s, it was common in Washington to think of “energy security” as a problem in which newly powerful Arab exporters could wield the “oil weapon” over vulnerable Western importers.

  This was the political science model of oil security, as Feith put it. Oil supplies lay scattered around the globe, as on the board of a Risk game, and governments competed for advantage and control. The United States military developed contingent plans to seize oil fields in Saudi Arabia in an emergency, particularly if the Soviet Union moved against them. Hostile governments might squeeze the United States by withholding its oil, as the Saudis and other Arab producers had done over American policy toward Israel. A logical response to this embargo threat was the one taken by President Gerald Ford in late 1975, when he signed into law a bill that authorized, among other things, the construction of the strategic petroleum reserve, where the United States could store volumes of oil equivalent to several months of imports, to be released in the event of an embargo or supply disruption. The S.P.R., as it was known, provided the United States with a countermove against hostile oil producers in any contest of physical access. The reserve’s existence presumably deterred oil-producing enemies from imposing embargoes. If one was imposed anyway, the S.P.R. provided Washington with time to pursue military or other interventions against the aggressor.