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.
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
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
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
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,"
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
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.
(Inter Press Service)