All about O.I.L. (Operation Iraqi Liberation)

Steve Kroft (60 Minutes) Q: Mr. Secretary, what do you say to people who think this is about oil??

Rumsfeld: Nonsense. It just isn't. There--there--there are certain things like that, myths that are floating around. I'm glad you asked. I--it has nothing to do with oil, literally nothing to do with oil. Dec 15, 2002

Look back on the Philippines around the turn of the 20th century: they were a coaling station for the navy, and that allowed us to keep a great presence in the Pacific. That's what Iraq is for the next few decades: our coaling station that gives us great presence in the Middle East. US (ret.) General Jay Garner

Last week, I argued that the Democrat victory in the mid-term elections would not lead to a total withdrawal of US troops from Iraq. Today I'm going to explain my reasoning more fully. In brief, contra outgoing Defense Secretary Rumsfeld, it's all about oil, and debt is the means to that prize.

One of the tried and true tactics of western imperialism is the use of debt to gain concessions on resources. The game is simple, extend more credit than a nation can repay and then, when the debt becomes unmanageable, seize resources in lieu of repayment. This is, of course, a two way street. The debt could be refused.

From the British seizure of the Suez Canal in 1875, due to lack of Egyptian debt repayment, to the imposition of PSAs (production sharing agreements) on Russia during the Yeltsin era to the current attempt to seize Iraqi Oil fields, the script is familiar. Unfortunately, the end result is also familiar- unfair agreements eventually (in Iraq's case, the eventual is now) lead to greater nationalization.

Russia's decision to impose impossible to meet environmental regulations on the Yeltsin era PSAs are one means to thwart such attempts. Bolivia and Venezuela offer other examples of the eventual effects of these unfair, at least from the perspective of the oil owning countries, agreements. One main impetus behind the Iraqi insurgency against US occupation and the partitioning of Iraq is control of oil.

In Iraq's case, the $120B in debt owed internationally, which does not include the roughly $30B in unpaid War reparations imposed after Iraq's attempt to seize Kuwait, is the lever the oil majors intend to use. In 2004 the Paris Club of creditors (an agreement negotiated by none other than James Baker now of the Iraq Study Group) agreed to write off 80% of the $38.9B of debt owed its members in three stages.

The first 30% were written off immediately. The second and third stages, 30% and 20% respectively, are tied to completion of an IMF program. The second 30% will be written off when Iraq signs their new oil law, expected in December of this year while the final 20% will be written off when the IMF certifies the "success" of the plan.

The IMF program includes privatization in all but name via the PSAs which some in Latin America have come to call PnSAs (production non-sharing agreements).

Thus you can see that the "new direction" for Iraq spoken of by Democrats will not include a complete withdrawal. In order to stop a repeat of the 1972 nationalization of Iraq's oil, US troops will be needed for many years, and perhaps as long as the PSAs remain in force (up to 40 years).

Next month, then, becomes a critical point for world markets. Will the new Iraqi government agree to the terms on offer and will they be able to maintain centralized control? The Kurds have already drafted an oil law which gives them autonomy over oil in northern Iraq, an outcome that isn't going to make Iraq's central government, the Iranians or the Turks very happy at all, as it increases the risk of loss of part of their territory.

In Shi-ite dominated southern Iraq, according to the Guardian, the General Union of Oil Employees sees one of its key roles safeguarding Iraq's oil from privatization. The Production Sharing Agreements predicted to be the favoured contractual mechanisms for exploiting Iraq's oil for the benefit of big oil companies could cost Iraq between $74-194bn in lost revenue according to Iraqi Oil Policy Analyst Greg Muttitt. The union has condemned PSAs as another form of privatisation. It recently issued a statement to the Iraqi prime minister and oil minister declaring that if any future energy law contained PSAs, the union would ensure its failure, "whatever the cost".

Whatever the cost. Hmmm, them sounds like fightin' words.

Waiting in the wings, flush with an overhang of $ reserves, lie Russia and especially China.

Consider this scenario. China, having already announced its intention of diversifying its reserves, decides to use those reserves to buy Iraqi debt, or minimally to pay the Iraqi government such that they can service the debt, and, in return for the financial assistance, get their own concessions, presumably on less onerous terms, much as the US undercut the British in Saudi Arabia.

We will see what December holds but in the event the Iraqi government does not sign an oil law to Big Oil's liking the recent calls by John McCain and Joe Lieberman to increase troop levels in Iraq might come to pass.

Operation Iraqi Liberation indeed.