Sunday, September 25, 2005

The failed mission to capture Iraqi oil

Sep 22, 2005


The failed mission to capture Iraqi oil
By Michael T Klare

It has long been an article of faith among America's senior policymakers - Democrats and Republicans alike - that military force is an effective tool for ensuring control over foreign sources of oil. Franklin D Roosevelt was the first president to embrace this view, in February 1945, when he promised King Abdul Aziz of Saudi Arabia that the United States would establish a military protectorate over his country in return for privileged access to Saudi oil - a promise that continues to govern US policy today. Every president since Roosevelt has endorsed this basic proposition, and has contributed in one way or another to the buildup of American military power in the greater Persian Gulf region.

American presidents have never hesitated to use this power when deemed necessary to protect US oil interests in the Gulf. When, following the Iraqi invasion of Kuwait, President Bush Senior sent



hundreds of thousands of US troops to Saudi Arabia in August 1990, he did so with absolute confidence that the application of American military power would eventually result in the safe delivery of ever-increasing quantities of Middle Eastern oil to the US. This presumption was clearly a critical factor in the younger Bush's decision to invade Iraq in March 2003.

Now, more than two years after that invasion, the growing Iraqi quagmire has demonstrated that the application of military force can have the very opposite effect: It can diminish - rather than enhance - America's access to foreign oil.

An occupation floating on a sea of oil
Oil was certainly not the only concern that prompted the American invasion of Iraq, but it weighed in heavily with many senior administration officials. This was especially true of Vice President Dick Cheney who, in an August 2002 speech to the Veterans of Foreign Wars, highlighted the need to retain control over Persian Gulf oil supplies when listing various reasons for toppling Saddam Hussein.

Nor is there any doubt that Cheney's former colleagues in the oil industry viewed Iraq's oilfields with covetous eyes. "For any oil company," one oil executive told the New York Times in February 2003, "being in Iraq is like being a kid in FAO Schwarz." Likewise, oil was a factor in the pre-war thinking of many key neo-conservatives who argued that Iraqi oilfields - once under US control would cripple the Organization of Petroleum Exporting Countries and thereby weaken the Arab states facing Israel.

Still, for some US policymakers, other factors were preeminent, especially the urge to demonstrate the efficacy of the Bush Doctrine, the precept that preventive war is a practical and legitimate response to possible weapons-of-mass-destruction ambitions on the part of potential adversaries. Whatever the primacy of their ultimate objectives, these leaders shared one basic assumption: that, when occupied by American forces, Iraq would pump ever increasing amounts of petroleum from its vast and prolific reserves.

This sense of optimism about Iraq's future oil output was palpable in Washington in the months leading up to the invasion. In its periodic reports on Iraqi petroleum, the Department of Energy (DoE), for example, confidently reported in late 2002 that, with sufficient outside investment, Iraq could quickly double its production from the then-daily level of 2.5 million barrels to 5 million barrels or more.

At the State Department, the Future of Iraq Project set up a Working Group on Oil and Energy to plan the privatization of Iraqi oil assets and the rapid introduction of Western capital and expertise into the local industry. Meanwhile, Iraqi exile Ahmed Chalabi - then the Pentagon's favored candidate to replace Saddam Hussein as suzerain of Iraq (and now Iraq's deputy prime minister in charge of energy infrastructure)- met with top executives of the major US oil companies and promised them a significant role in developing Iraq's vast petroleum reserves. "American companies will have a big shot at Iraqi oil," he insisted in September 2002.

Aside from the purely pecuniary benefits of seizing Iraqi oil, administration officials of all persuasions saw another key attraction: once Iraqi fields were pumping oil again, the resulting revenues would essentially pay for the war and the costs of occupation. "We can afford it," White House economic adviser Larry Lindsey said of the planned US invasion, because rising Iraqi oil output would invigorate the US economy.

"When there is regime change in Iraq, you could add 3 to 5 million barrels [per day] of production to world supply," he told the Wall Street Journal in September 2002. Hence, "Successful prosecution of the war would be good for the economy." In one of the most striking comments of this sort, then deputy secretary of defense Paul Wolfowitz told a congressional panel, "The oil revenue of [Iraq] could bring between $50 billion and $100 billion over the course of the next two or three years. We're dealing with a country that could really finance its own reconstruction, and relatively soon."

Clearly, gaining control of what Wolfowitz once described as a country that "floats on a sea of oil" was one of the Pentagon's highest priorities in the early days of the invasion. As part of its planning for the assault, the Department of Defense established detailed plans to seize Iraqi oil fields and installations during the first days of the war.

"It's fair to say that our land component commander and his planning staff have crafted strategies that will allow us to secure and protect these fields as rapidly as possible," a top Pentagon official told the media on January 24, 2003. Once US troops entered Iraq, special combat teams spread out into the oil fields and occupied key installations. In fact, the very first operation of the war was a commando raid on an offshore loading platform in the Persian Gulf. "Swooping silently out of the Persian Gulf night," an over-stimulated reporter for the New York Times wrote on March 23, "Navy Seals seized two Iraqi oil terminals in bold raids that ended early this morning, overwhelming lightly armed Iraqi guards and claiming a bloodless victory in the battle for Iraq's vast oil empire."

This early "victory" was followed by others, as US forces occupied key refineries and, most conspicuously, the Oil Ministry building in downtown Baghdad. So far, so good. But almost instantaneously things began to go seriously wrong.

Lacking sufficient troops to protect the oil facilities and all the other infrastructure in Baghdad and other key cities, the military chose to protect the oil alone - allowing desperate and rapacious Iraqis to go on a rampage of looting that fatally undermined the authority of the military occupation and the US-backed interim government.

To make matters worse, the very visible American emphasis on protecting oil facilities while ignoring other infrastructure gave the distinct - and not completely inaccurate -impression that the US had invaded Iraq less to liberate it from a tyrannical regime than to steal, or at least control, its oil. And from this perception came part of the anger and resentment that constituted the essential raw materials for the outbreak of an armed insurgency against the American occupation and everything associated with it. The Bush administration never recovered from this disastrous chain of events.

An occupation engulfed in a sea of fire
The Iraqi insurgency is not monolithic, and it is not always possible to determine the intentions of its various components. Nevertheless, it is clear that oil - that is, the association between Iraqi oil and the American occupation - plays a central role in the insurgents' hazy ideology. "The insurgents used this," Iraqi-born oil consultant Falah Alijbury said of American plans to privatize the Iraqi oil industry. As he put it, the insurgents are telling fellow Iraqis, "Look, you're losing your country, you're losing your resources to a bunch of wealthy billionaires who want to take you over and make your life miserable." From Alijbury's perspective, this is one of the insurgency's most powerful appeals.

The disparate Iraqi insurgent groups were also aware of Washington's intent to finance its war and occupation through sales of Iraqi petroleum, and so have made sabotage of Iraq's pipelines, pumping stations, and loading terminals one of their most important strategic objectives. According to one source, insurgents conducted 230 major attacks on Iraq's oil infrastructure between January 2004 and September 7, 2005, causing billions of dollars in losses. Here, for instance, is a listing of some of the most recent attacks, as compiled by the Institute for the Analysis of Global Security:

# August 20: Attack on a major pipeline between Bayji and Baghdad stopped electricity to the capital.
# August 26: Insurgents sabotaged an exporting oil well north of Kirkuk.

# August 27: Bomb beneath an oil pipeline supplying the Daura oil refinery in Baghdad, causing an hour-long fire.

# August 29: Rebels fired a mortar at Iraq's oil ministry building in Baghdad.

# August 30: Lieutenant Colonel Mohammed Rashad, commander of a unit protecting Iraq's oil pipeline network, was assassinated in front of his home in Kirkuk as he was leaving for work.

# September 3: An explosion on oil pipeline 2.5 miles from Fatha, between Kirkuk and Bayji, stopping oil flow from Kirkuk to Ceyhan after insurgents ignited an oil leak.

# September 5: Oil pipeline connecting Bayji and Baghdad was set on fine west of Samarra.

As a result of such attacks, which continue to occur on a near-daily basis, Iraqi oil output has actually declined since the US invaded Iraq and overthrew Saddam. According to the DoE, total production stood at 1.9 million barrels per day in May this year, compared to 2.6 million barrels in January 2003, just before the American invasion. Quite the opposite of paying for the American occupation, as promised by administration officials, Iraqi production is costing US taxpayers billions of dollars per year. Underwriting the costs of using American soldiers and US-paid private guards to protect Iraq's highly vulnerable pipelines and refineries has proved expensive indeed.

At present, American forces are protecting two main components of Iraq's oil infrastructure: the Kirkuk-to-Ceyhan export pipeline in the north, near Iraq's border with Turkey; and offshore loading terminals in the south, on the edge of the Persian Gulf. Protection of the northern pipeline is the responsibility of Task Force Shield, a mobile combat unit made up of army forces drawn from Fort Wainright, Alaska and Fort Lewis in Washington State. In the Gulf, protection of the loading platforms is the responsibility of the US Navy and the Coast Guard.

These oil-protection operations have proved extremely hazardous. In April 2004, for example, suicide bombers in a small boat approached the Khor al-Amaya offshore loading terminal and detonated their explosives when approached by a US patrol ship, killing two navy sailors and one Coast Guard sailor - the latter being the first Coast Guardsman to be killed in combat since the Vietnam War. Adding further symbolism to this event, the platform involved was one of those occupied by Navy Seals in March 2003 in that "bloodless victory in the battle for Iraq's vast oil empire".

Despite the deployment of American troops at key oil facilities and the ever-rising amounts of money invested in pipeline security, the Department of Defense has made zero progress in its drive to boost Iraqi oil output. "In the north, Iraq's main export pipeline looks all but impossible to protect from sabotage," the British Financial Times reported in June. "Meanwhile, in the south, local tribal disputes, which often go unreported, hamper efforts to restore oilfields, while security costs and other reconstruction bills all reduce the amount of money available for [the rehabilitation of] the oil industry."

Efforts to boost Iraqi oil production have also been hampered by two other problems: pervasive corruption in the Oil Ministry and severe differences between the Kurds, the Sunnis and the Shi'ites over the future allocation of oil revenues.

Just how much Iraqi oil has been lost to corruption or black-market transactions is impossible to determine, but experts believe the amounts are substantial. "Administrative corruption takes on so many forms," Muhammad al-Abudi, the Oil Ministry's director-general of drilling, observed in March 2005.

"The robberies and thefts that are taking place on a daily basis and on all levels ... are committed by low-level government employees and also by high officials in leadership positions in the Iraqi state," he noted. Typically, these losses are blamed on insurgent activity, thereby diverting attention from the government figures actually responsible. "It seems there that there is an implicit alliance between the smuggling and sabotage forces aimed at increasing the rates of exhaustion of the state resources," Diya al-Bakka, another senior Oil Ministry official told Oil & Gas Journal in May.

The corruption and mismanagement has had another serious consequence for Iraq's long-term oil potential: in order to maximize output now, and thereby keep the dollars rolling in, Iraqi oil executives are employing faulty pumping methods, thus risking permanent damage to underground reservoirs. For example, managers are continuing to pump oil from Iraq's main Rumailia oilfield, one of the world's largest, even though water injection systems (used to maintain underground pressure) have failed; in so doing, they are thought by experts to be causing irreversible damage to the field. "The problem is that [underground] pressure problems could lead to a permanent decline in production," observed one European buyer of Iraqi oil quoted in the Financial Times last June. Even if US companies later were to gain access to Iraqi fields, therefore, they might find yields to be disappointing.

Just as significant is the warring between Iraq's three main ethnic and religious communities over the distribution of future oil royalties. Most of Iraq's large oilfields are concentrated in the Kurdish north and the Shi'ite south. The Kurds and Shi'ites want most of the royalties to be distributed to Iraq's provinces on a per capita basis, which would benefit them, but leave funds relatively scarce for the Sunni region and for any future central government in Baghdad.

A failure to reach agreement on this issue was one of the main obstacles to final adoption of the new Iraqi constitution, and helped prompt the Sunni delegates to reject the final text. The Sunnis are also worried by provisions of the proposed constitution that allow groups of provinces (presumably in the Kurdish and Shi'ite areas) to form self-governing regional entities which could lead to the breakup of Iraq into three semi-independent statelets, with the Sunnis occupying the smallest and poorest region in the center.

Not only would such a breakup enhance the Sunnis' sense of alienation from the Iraqi nation-building project - thereby further invigorating an already vigorous insurgency - but it would also disrupt Iraqi oil operations and make investment in Iraq's petroleum industry even less attractive to foreign oil companies. The net result, in all likelihood, will be a further decline in Iraqi petroleum output.

The oil evaporates
From all that can be seen, oil production in Iraq is likely to remain depressed for years, no matter how much more blood is shed in its pursuit. It is already evident that American military action will not lead to democracy in Iraq, merely to the division of the country into separate ethnic enclaves, one possibly ruled by Iranian-like ayatollahs; it can now also be said that we will not gain any additional petroleum supplies as a result of all this sacrifice and tragedy. Not only has the use of force to procure Iraqi oil failed to achieve its intended results, it has actually made the situation worse.

This is an important conclusion to draw from Iraq as the US becomes ever more dependent on imported petroleum. Even before Katrina struck a blow to the US's domestic oil industry, the Department of Energy was already projecting reliance on imports to grow from about 53% of total consumption in 2002 to 66% by 2025.

As a result of the hurricane, that percentage will in all likelihood be pushed much higher because most of the growth in domestic petroleum output was expected to occur in the deep waters of the Gulf of Mexico - the area most heavily affected by Katrina and its 2004 predecessor Ivan. A number of the drilling platforms in these waters were sunk by the storms, which also played havoc with the pipelines connecting them to shore.

True, many of the platforms that survived will be repaired and put back into operation, but insurance rates have skyrocketed; and investors may prove hesitant, even with oil prices soaring, to put up billions of dollars to install new platforms that will only be washed away in the next major hurricane. As a result, domestic US output may fall well below DoE projections, and so more of our supply will have to be imported.

And there is no question where this additional oil will have to be procured: in the Middle East, Central Asia, Africa, the Andes and other areas beset by chronic instability and conflict. These are the only areas capable of increasing oil output sufficiently to satisfy rising US demand, and so these are the areas that will attract the greatest American attention and potential Pentagon involvement.

If past experience is any indication, US policymakers will respond to the dilemma of our growing dependence on unstable foreign providers by sending more and more American military forces to these areas in a desperate attempt to ensure uninterrupted access to oil. This is, in fact, the underlying reason for the Pentagon's search for new military bases in Central Asia, the Persian Gulf and Africa.

Despite the debacle of Iraq, most senior policymakers appear to retain their blind faith in the efficacy of military force as a tool for securing access to foreign sources of petroleum. This, as Iraq makes painfully clear, is delusional. Yet they persist in risking the lives of young Americans and others in their continued adherence to a failed and immoral strategy. Any attempt to reconstruct American foreign policy on a more rational and ethical basis must, therefore, begin with the repudiation of the use of force in procuring foreign oil and the adoption of a forward-looking energy strategy based on increased conservation and the rapid development of alternative fuels.

Michael T Klare is the Professor of Peace and World Security Studies at Hampshire College and the author, most recently, of Blood and Oil: The Dangers and Consequences of America's Growing Dependence on Imported Petroleum (Owl Books) as well as Resource Wars, The New Landscape of Global Conflict.
Sep 22, 2005
The failed mission to capture Iraqi oil
By Michael T Klare

It has long been an article of faith among America's senior policymakers - Democrats and Republicans alike - that military force is an effective tool for ensuring control over foreign sources of oil. Franklin D Roosevelt was the first president to embrace this view, in February 1945, when he promised King Abdul Aziz of Saudi Arabia that the United States would establish a military protectorate over his country in return for privileged access to Saudi oil - a promise that continues to govern US policy today. Every president since Roosevelt has endorsed this basic proposition, and has contributed in one way or another to the buildup of American military power in the greater Persian Gulf region.

American presidents have never hesitated to use this power when deemed necessary to protect US oil interests in the Gulf. When, following the Iraqi invasion of Kuwait, President Bush Senior sent



hundreds of thousands of US troops to Saudi Arabia in August 1990, he did so with absolute confidence that the application of American military power would eventually result in the safe delivery of ever-increasing quantities of Middle Eastern oil to the US. This presumption was clearly a critical factor in the younger Bush's decision to invade Iraq in March 2003.

Now, more than two years after that invasion, the growing Iraqi quagmire has demonstrated that the application of military force can have the very opposite effect: It can diminish - rather than enhance - America's access to foreign oil.

An occupation floating on a sea of oil
Oil was certainly not the only concern that prompted the American invasion of Iraq, but it weighed in heavily with many senior administration officials. This was especially true of Vice President Dick Cheney who, in an August 2002 speech to the Veterans of Foreign Wars, highlighted the need to retain control over Persian Gulf oil supplies when listing various reasons for toppling Saddam Hussein.

Nor is there any doubt that Cheney's former colleagues in the oil industry viewed Iraq's oilfields with covetous eyes. "For any oil company," one oil executive told the New York Times in February 2003, "being in Iraq is like being a kid in FAO Schwarz." Likewise, oil was a factor in the pre-war thinking of many key neo-conservatives who argued that Iraqi oilfields - once under US control would cripple the Organization of Petroleum Exporting Countries and thereby weaken the Arab states facing Israel.

Still, for some US policymakers, other factors were preeminent, especially the urge to demonstrate the efficacy of the Bush Doctrine, the precept that preventive war is a practical and legitimate response to possible weapons-of-mass-destruction ambitions on the part of potential adversaries. Whatever the primacy of their ultimate objectives, these leaders shared one basic assumption: that, when occupied by American forces, Iraq would pump ever increasing amounts of petroleum from its vast and prolific reserves.

This sense of optimism about Iraq's future oil output was palpable in Washington in the months leading up to the invasion. In its periodic reports on Iraqi petroleum, the Department of Energy (DoE), for example, confidently reported in late 2002 that, with sufficient outside investment, Iraq could quickly double its production from the then-daily level of 2.5 million barrels to 5 million barrels or more.

At the State Department, the Future of Iraq Project set up a Working Group on Oil and Energy to plan the privatization of Iraqi oil assets and the rapid introduction of Western capital and expertise into the local industry. Meanwhile, Iraqi exile Ahmed Chalabi - then the Pentagon's favored candidate to replace Saddam Hussein as suzerain of Iraq (and now Iraq's deputy prime minister in charge of energy infrastructure)- met with top executives of the major US oil companies and promised them a significant role in developing Iraq's vast petroleum reserves. "American companies will have a big shot at Iraqi oil," he insisted in September 2002.

Aside from the purely pecuniary benefits of seizing Iraqi oil, administration officials of all persuasions saw another key attraction: once Iraqi fields were pumping oil again, the resulting revenues would essentially pay for the war and the costs of occupation. "We can afford it," White House economic adviser Larry Lindsey said of the planned US invasion, because rising Iraqi oil output would invigorate the US economy.

"When there is regime change in Iraq, you could add 3 to 5 million barrels [per day] of production to world supply," he told the Wall Street Journal in September 2002. Hence, "Successful prosecution of the war would be good for the economy." In one of the most striking comments of this sort, then deputy secretary of defense Paul Wolfowitz told a congressional panel, "The oil revenue of [Iraq] could bring between $50 billion and $100 billion over the course of the next two or three years. We're dealing with a country that could really finance its own reconstruction, and relatively soon."

Clearly, gaining control of what Wolfowitz once described as a country that "floats on a sea of oil" was one of the Pentagon's highest priorities in the early days of the invasion. As part of its planning for the assault, the Department of Defense established detailed plans to seize Iraqi oil fields and installations during the first days of the war.

"It's fair to say that our land component commander and his planning staff have crafted strategies that will allow us to secure and protect these fields as rapidly as possible," a top Pentagon official told the media on January 24, 2003. Once US troops entered Iraq, special combat teams spread out into the oil fields and occupied key installations. In fact, the very first operation of the war was a commando raid on an offshore loading platform in the Persian Gulf. "Swooping silently out of the Persian Gulf night," an over-stimulated reporter for the New York Times wrote on March 23, "Navy Seals seized two Iraqi oil terminals in bold raids that ended early this morning, overwhelming lightly armed Iraqi guards and claiming a bloodless victory in the battle for Iraq's vast oil empire."

This early "victory" was followed by others, as US forces occupied key refineries and, most conspicuously, the Oil Ministry building in downtown Baghdad. So far, so good. But almost instantaneously things began to go seriously wrong.

Lacking sufficient troops to protect the oil facilities and all the other infrastructure in Baghdad and other key cities, the military chose to protect the oil alone - allowing desperate and rapacious Iraqis to go on a rampage of looting that fatally undermined the authority of the military occupation and the US-backed interim government.

To make matters worse, the very visible American emphasis on protecting oil facilities while ignoring other infrastructure gave the distinct - and not completely inaccurate -impression that the US had invaded Iraq less to liberate it from a tyrannical regime than to steal, or at least control, its oil. And from this perception came part of the anger and resentment that constituted the essential raw materials for the outbreak of an armed insurgency against the American occupation and everything associated with it. The Bush administration never recovered from this disastrous chain of events.

An occupation engulfed in a sea of fire
The Iraqi insurgency is not monolithic, and it is not always possible to determine the intentions of its various components. Nevertheless, it is clear that oil - that is, the association between Iraqi oil and the American occupation - plays a central role in the insurgents' hazy ideology. "The insurgents used this," Iraqi-born oil consultant Falah Alijbury said of American plans to privatize the Iraqi oil industry. As he put it, the insurgents are telling fellow Iraqis, "Look, you're losing your country, you're losing your resources to a bunch of wealthy billionaires who want to take you over and make your life miserable." From Alijbury's perspective, this is one of the insurgency's most powerful appeals.

The disparate Iraqi insurgent groups were also aware of Washington's intent to finance its war and occupation through sales of Iraqi petroleum, and so have made sabotage of Iraq's pipelines, pumping stations, and loading terminals one of their most important strategic objectives. According to one source, insurgents conducted 230 major attacks on Iraq's oil infrastructure between January 2004 and September 7, 2005, causing billions of dollars in losses. Here, for instance, is a listing of some of the most recent attacks, as compiled by the Institute for the Analysis of Global Security:

  • August 20: Attack on a major pipeline between Bayji and Baghdad stopped electricity to the capital.
  • August 26: Insurgents sabotaged an exporting oil well north of Kirkuk.

  • August 27: Bomb beneath an oil pipeline supplying the Daura oil refinery in Baghdad, causing an hour-long fire.

  • August 29: Rebels fired a mortar at Iraq's oil ministry building in Baghdad.

  • August 30: Lieutenant Colonel Mohammed Rashad, commander of a unit protecting Iraq's oil pipeline network, was assassinated in front of his home in Kirkuk as he was leaving for work.

  • September 3: An explosion on oil pipeline 2.5 miles from Fatha, between Kirkuk and Bayji, stopping oil flow from Kirkuk to Ceyhan after insurgents ignited an oil leak.

  • September 5: Oil pipeline connecting Bayji and Baghdad was set on fine west of Samarra.

    As a result of such attacks, which continue to occur on a near-daily basis, Iraqi oil output has actually declined since the US invaded Iraq and overthrew Saddam. According to the DoE, total production stood at 1.9 million barrels per day in May this year, compared to 2.6 million barrels in January 2003, just before the American invasion. Quite the opposite of paying for the American occupation, as promised by administration officials, Iraqi production is costing US taxpayers billions of dollars per year. Underwriting the costs of using American soldiers and US-paid private guards to protect Iraq's highly vulnerable pipelines and refineries has proved expensive indeed.

    At present, American forces are protecting two main components of Iraq's oil infrastructure: the Kirkuk-to-Ceyhan export pipeline in the north, near Iraq's border with Turkey; and offshore loading terminals in the south, on the edge of the Persian Gulf. Protection of the northern pipeline is the responsibility of Task Force Shield, a mobile combat unit made up of army forces drawn from Fort Wainright, Alaska and Fort Lewis in Washington State. In the Gulf, protection of the loading platforms is the responsibility of the US Navy and the Coast Guard.

    These oil-protection operations have proved extremely hazardous. In April 2004, for example, suicide bombers in a small boat approached the Khor al-Amaya offshore loading terminal and detonated their explosives when approached by a US patrol ship, killing two navy sailors and one Coast Guard sailor - the latter being the first Coast Guardsman to be killed in combat since the Vietnam War. Adding further symbolism to this event, the platform involved was one of those occupied by Navy Seals in March 2003 in that "bloodless victory in the battle for Iraq's vast oil empire".

    Despite the deployment of American troops at key oil facilities and the ever-rising amounts of money invested in pipeline security, the Department of Defense has made zero progress in its drive to boost Iraqi oil output. "In the north, Iraq's main export pipeline looks all but impossible to protect from sabotage," the British Financial Times reported in June. "Meanwhile, in the south, local tribal disputes, which often go unreported, hamper efforts to restore oilfields, while security costs and other reconstruction bills all reduce the amount of money available for [the rehabilitation of] the oil industry."

    Efforts to boost Iraqi oil production have also been hampered by two other problems: pervasive corruption in the Oil Ministry and severe differences between the Kurds, the Sunnis and the Shi'ites over the future allocation of oil revenues.

    Just how much Iraqi oil has been lost to corruption or black-market transactions is impossible to determine, but experts believe the amounts are substantial. "Administrative corruption takes on so many forms," Muhammad al-Abudi, the Oil Ministry's director-general of drilling, observed in March 2005.

    "The robberies and thefts that are taking place on a daily basis and on all levels ... are committed by low-level government employees and also by high officials in leadership positions in the Iraqi state," he noted. Typically, these losses are blamed on insurgent activity, thereby diverting attention from the government figures actually responsible. "It seems there that there is an implicit alliance between the smuggling and sabotage forces aimed at increasing the rates of exhaustion of the state resources," Diya al-Bakka, another senior Oil Ministry official told Oil & Gas Journal in May.

    The corruption and mismanagement has had another serious consequence for Iraq's long-term oil potential: in order to maximize output now, and thereby keep the dollars rolling in, Iraqi oil executives are employing faulty pumping methods, thus risking permanent damage to underground reservoirs. For example, managers are continuing to pump oil from Iraq's main Rumailia oilfield, one of the world's largest, even though water injection systems (used to maintain underground pressure) have failed; in so doing, they are thought by experts to be causing irreversible damage to the field. "The problem is that [underground] pressure problems could lead to a permanent decline in production," observed one European buyer of Iraqi oil quoted in the Financial Times last June. Even if US companies later were to gain access to Iraqi fields, therefore, they might find yields to be disappointing.

    Just as significant is the warring between Iraq's three main ethnic and religious communities over the distribution of future oil royalties. Most of Iraq's large oilfields are concentrated in the Kurdish north and the Shi'ite south. The Kurds and Shi'ites want most of the royalties to be distributed to Iraq's provinces on a per capita basis, which would benefit them, but leave funds relatively scarce for the Sunni region and for any future central government in Baghdad.

    A failure to reach agreement on this issue was one of the main obstacles to final adoption of the new Iraqi constitution, and helped prompt the Sunni delegates to reject the final text. The Sunnis are also worried by provisions of the proposed constitution that allow groups of provinces (presumably in the Kurdish and Shi'ite areas) to form self-governing regional entities which could lead to the breakup of Iraq into three semi-independent statelets, with the Sunnis occupying the smallest and poorest region in the center.

    Not only would such a breakup enhance the Sunnis' sense of alienation from the Iraqi nation-building project - thereby further invigorating an already vigorous insurgency - but it would also disrupt Iraqi oil operations and make investment in Iraq's petroleum industry even less attractive to foreign oil companies. The net result, in all likelihood, will be a further decline in Iraqi petroleum output.

    The oil evaporates
    From all that can be seen, oil production in Iraq is likely to remain depressed for years, no matter how much more blood is shed in its pursuit. It is already evident that American military action will not lead to democracy in Iraq, merely to the division of the country into separate ethnic enclaves, one possibly ruled by Iranian-like ayatollahs; it can now also be said that we will not gain any additional petroleum supplies as a result of all this sacrifice and tragedy. Not only has the use of force to procure Iraqi oil failed to achieve its intended results, it has actually made the situation worse.

    This is an important conclusion to draw from Iraq as the US becomes ever more dependent on imported petroleum. Even before Katrina struck a blow to the US's domestic oil industry, the Department of Energy was already projecting reliance on imports to grow from about 53% of total consumption in 2002 to 66% by 2025.

    As a result of the hurricane, that percentage will in all likelihood be pushed much higher because most of the growth in domestic petroleum output was expected to occur in the deep waters of the Gulf of Mexico - the area most heavily affected by Katrina and its 2004 predecessor Ivan. A number of the drilling platforms in these waters were sunk by the storms, which also played havoc with the pipelines connecting them to shore.

    True, many of the platforms that survived will be repaired and put back into operation, but insurance rates have skyrocketed; and investors may prove hesitant, even with oil prices soaring, to put up billions of dollars to install new platforms that will only be washed away in the next major hurricane. As a result, domestic US output may fall well below DoE projections, and so more of our supply will have to be imported.

    And there is no question where this additional oil will have to be procured: in the Middle East, Central Asia, Africa, the Andes and other areas beset by chronic instability and conflict. These are the only areas capable of increasing oil output sufficiently to satisfy rising US demand, and so these are the areas that will attract the greatest American attention and potential Pentagon involvement.

    If past experience is any indication, US policymakers will respond to the dilemma of our growing dependence on unstable foreign providers by sending more and more American military forces to these areas in a desperate attempt to ensure uninterrupted access to oil. This is, in fact, the underlying reason for the Pentagon's search for new military bases in Central Asia, the Persian Gulf and Africa.

    Despite the debacle of Iraq, most senior policymakers appear to retain their blind faith in the efficacy of military force as a tool for securing access to foreign sources of petroleum. This, as Iraq makes painfully clear, is delusional. Yet they persist in risking the lives of young Americans and others in their continued adherence to a failed and immoral strategy. Any attempt to reconstruct American foreign policy on a more rational and ethical basis must, therefore, begin with the repudiation of the use of force in procuring foreign oil and the adoption of a forward-looking energy strategy based on increased conservation and the rapid development of alternative fuels.

    Michael T Klare is the Professor of Peace and World Security Studies at Hampshire College and the author, most recently, of Blood and Oil: The Dangers and Consequences of America's Growing Dependence on Imported Petroleum (Owl Books) as well as Resource Wars, The New Landscape of Global Conflict.
  • Wednesday, September 14, 2005

    Probably Would Have Gone To $100

    U.S. SEC Aims to Halt $3.6 Bln Offering by Apollo (Update5)

    Sept. 13 (Bloomberg) -- The U.S. Securities and Exchange Commission is seeking to halt a $3.6 billion initial public offering by a Canadian publisher that claims ``Al Greenspan'' as an auditor and seeks to unite the world using one language, one currency and one postage stamp.

    Apollo Publication Corp. said in its IPO filing that former U.S. Presidents George H.W. Bush and Jimmy Carter serve as directors, the SEC said in a statement today. Apollo falsely claimed that Canadian Imperial Bank of Commerce, the country's fourth-largest bank, was leading the stock sale along with eight other banks, the SEC said.

    ``When God created the Universe, her children have lived on the planets and stars like Earth all over the Universe,'' Apollo said in its company overview filed with the SEC.

    The regulator will hold an administrative hearing Sept. 26, two days before the company's registration becomes effective. SEC spokesman John Nester declined to comment.

    CIBC said Apollo used its name without permission.

    ``Neither CIBC World Markets nor any of its affiliates is any way connected with the registration statement, the offering or the issuer,'' spokesman Stephen Forbes said by e-mail.

    The SEC's division of corporate finance flagged Apollo's registration after it was filed. The regulator can sue companies if they make material misstatements about their financial condition.

    E-Mail

    Apollo, based on a residential street in Windsor, Ontario, said in an e-mail to Bloomberg News, ``We are glad to receive your e-mail. We shall contact you if we think it is necessary.'' A voice message left on an answering machine at the company's telephone number wasn't returned.

    In its 71-page filing, Apollo claimed it will use the money from the IPO to publish children's textbooks, so all the kids in the world born after 2000 will speak one language, known as Luobus. The world would also benefit from a single currency, called the Luobu, and a single stamp, the Poluo.

    ``The land of earth is overcrowded with all kinds of animals. They quarrel, fight and war,'' the filing said. ``Apollo is here to compose a symphony which has a role for all sounds, acts and minds in one harmony, tone and chapter.''

    The company forecast revenue of $3.6 billion in fiscal 2005, rising to $14.5 billion in 2007, once the world's children begin using the textbooks. Shareholders include Italian Prime Minister Silvio Berlusconi, Canadian Prime Minister Paul Martin and U.K. Prime Minister Tony Blair, the filing said.

    The company's Web site, which is in English and Chinese with grammatical errors and spelling mistakes, says Apollo sells books, postcards, birth and marriage certificates, and stamps through an online store.

    The site says humanity's ancestry ``originated from the same creator, whom we call her -- the God Luo in our solo solar system.''

    Apollo was incorporated as a company in Ontario on June 3, 2005, with headquarters at 1547 York St. in Windsor, according to the Ontario government. Apollo's chief executive is Xiaobo Lucy Luo, a Canadian, corporate filings said.


    Saturday, September 10, 2005

    US runs out of money

    http://www.guardian.co.uk/Iraq/Story/0,2763,1566176,00.html

    Iraq rebuilding under threat as US runs out of money

    Rory Carroll in Baghdad and Julian Borger in Washington
    Friday September 9, 2005
    The Guardian

    Key rebuilding projects in Iraq are grinding to a halt because American money is running out and security has diverted funds intended for electricity, water and sanitation, according to US officials.

    Plans to overhaul the country's infrastructure have been downsized, postponed or abandoned because the $24bn (£13bn) budget approved by Congress has been dwarfed by the scale of the task.

    "We have scaled back our projects in many areas," James Jeffrey, a senior state department adviser on Iraq, told a congressional committee in Washington, in remarks quoted by the Los Angeles Times. "We do not have the money."

    Water and sanitation have been particularly badly hit. According to a report published this week by Government Accountability Office, the investigative branch of Congress, $2.6bn has been spent on water projects, half the original budget, after the rest was diverted to security and other uses.

    The report said "attacks, threats and intimidation against project contractors and subcontractors" were to blame. A quarter of the $200m-worth of completed US-funded water projects handed over to the Iraqi authorities no longer worked properly because of "looting, unreliable electricity or inadequate Iraqi staff and supplies", the report found.

    Both Democrats and Republicans in Congress also said administrative bungling had played a part.

    Stuart Bowen, the US special inspector general for Iraqi reconstruction, said he was reluctant to ask for cash immediately after Hurricane Katrina: "It is an issue that we need to address at the right time."

    He said non-US sources might be asked to plug the gap.

    After Congress approved funding two years ago, oil, electricity, water and sanitation facilities were found to be more degraded than expected. Amid the chaos and corruption of the post-Saddam administration, insurgents also began to target the infrastructure and anyone working for the US or the Iraqi government.

    It is in this context that many of the estimated 20,000 foreign security contractors now in Iraq - some paid more than $1,000 a day - are employed. Mr Bowen said $5bn had been diverted to security.

    Some areas now get less than four hours of electricity a day, and there has been a surge in cases of dehydration and diarrhoea among children and the elderly. The cost of providing enough electricity for the country by 2010 is put at $20bn.

    Fuel shortages have produced mile-long queues at petrol stations. Crude oil production is around 2.2m barrels a day, still below its pre-war peaks, according to the Brookings Institution in Washington.


    There have been improvements: the health ministry says the overall rate of disease among children under five has dropped; parts of Baghdad are noticeably sprucer; and thousands of schools have been built or rehabilitated. Electricity generation has recently climbed above pre-war levels.

    But the house appropriations foreign operations subcommittee is losing patience.

    "It seems almost incomprehensible to me that we haven't been able to do better," said Don Sherwood, a Pennsylvania Republican. Another Republican, the committee chairman, Jim Kolbe, said the Bush administration's vision of stabilising Iraq by funding reconstruction was "a castle built of sand".

    Tuesday, September 06, 2005

    U.S. warns China on energy ties to Iran

    U.S. warns China on energy ties to Iran

    By Carol Giacomo, Diplomatic Correspondent

    WASHINGTON (Reuters) - China will be increasingly in conflict with the United States if it continues to pursue energy deals with countries like
    Iran and is unlikely to gain the energy security it seeks, a senior U.S. official said on Tuesday.

    Deputy Secretary of State
    Robert Zoellick said he was not sure how much of Beijing's energy drive was propelled by new Chinese oil companies or by a government "strategic plan."

    But he told a group of reporters it was unlikely that Beijing could guarantee its own energy security through contracts with countries which Washington and other states consider troublesome "because you can't lock up energy resources" in a global marketplace.

    Instead, the Bush administration was encouraging China to adopt a broader definition of energy that included cooperative efforts with Washington and others to develop energy sources beyond oil and gas, expanding sources of oil and gas and improving energy efficiency, he said.

    Zoellick, in charge of what Washington calls a new U.S. strategic dialogue with Beijing, discussed key issues facing the two powers ahead of Chinese President
    Hu Jintao's attendance at the
    United Nations summit in New York next week.

    Hu had been due to make his first official visit to the White House on Wednesday but it was canceled so
    President George W. Bush could focus on the Hurricane Katrina aftermath.

    The two are still expected to meet on the fringes of the U.N. summit. Cooperation on trying to end the North Korean and Iranian nuclear programs will be on the U.S. agenda.

    Zoellick launched the strategic dialogue on a trip to Beijing last month amid rising U.S. concern over China's growing economic and military clout. Washington aims to foster greater cooperation and avoid dangerous miscalculation by examining Sino-American relations in a larger framework.

    Zoellick acknowledged "there are questions that are being asked not only in the U.S. but other parts of Asia and Europe about how China will use this growing power."

    CHINA AS WORLD POWER

    China became the world's third largest importer of oil in 2003. It sought energy and mineral deals with Iran, whom the United States and Europe accuse of pursuing nuclear weapons, with Sudan, accused of genocide in the Darfur region, and Venezuela, where the president has allied with Cuba, a U.S. adversary.

    Zoellick said he told Chinese officials that from a U.S. perspective "it looked like Chinese companies had been unleashed to try to lock up energy resources."

    This is an elusive goal because even when governments think they "own" the resources of another country, that country could nationalize the assets, he said.

    He said Beijing's ties to what the United States considered troublesome states -- the list also included Burma and Zimbabwe -- were "going to have repercussions elsewhere" and the Chinese would have to decide if they wanted to pay the price.

    China must choose whether to work with the United States to ameliorate problems posed by these states -- while still protecting Beijing's energy interests -- or whether it "want(ed) to be against us and perhaps others in the international system as well," Zoellick said.

    The State Department's former chief China official, Randall Schriver, told Reuters last week he feared the two powers were on a "collision course" over the ties Beijing is forging in its search for energy to feed its growing economy.

    Some U.S. experts worry Beijing is gobbling up energy assets to secure control over vital resources that would allow it eventually to supplant the United States as the world's dominant power. China this year made a bid for a U.S.-owned oil giant but withdrew after a torrent of criticism from the U.S. Congress.

    Wednesday, August 24, 2005

    Trouble Ahead, Trouble Behind

    Fed Summons 14 Banks to Discuss Credit-Derivatives Controls

    Aug. 24 (Bloomberg) -- The Federal Reserve Bank of New York invited 14 of the ``major participants'' in the credit- derivatives market to a meeting next month amid concern the $8.4 trillion industry is rife with unconfirmed trades.

    The meeting at the Fed's New York office on Sept. 15 will focus on market practices, according to an Aug. 12 letter sent to bank chief executives by New York Fed President Timothy Geithner. Fed spokesman Peter Bakstansky confirmed the letter's contents and declined to name the firms invited.

    The credit-derivatives market more than doubled in the past year, giving companies, investors and governments the ability to bet on or protect against changes in credit quality. A backlog of confirmed trades may undermine investor confidence, a group led by E. Gerald Corrigan, managing director at Goldman Sachs Group Inc. and a former New York Fed president, said last month.

    The Counterparty Risk Management Policy Group, the banking industry group led by Corrigan that first met in 1999 after the collapse of hedge fund Long-Term Capital Management, said in a report on July 27 that ``urgent'' effort is needed to tackle the ``serious'' accumulation of trade confirmations. Banks should be prepared to consider reducing trading until the deals are confirmed, the report said.

    JPMorgan Chase & Co., Deutsche Bank AG, Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. dominate the credit- derivatives market as the five most-cited trading partners, according to Fitch Ratings.

    `Senior' Executives

    The Fed's letter said ``a senior business representative and a senior risk management person,'' should attend the meeting.

    Credit derivatives are the fastest growing part of the $24 trillion derivatives market, based on the so-called notional value of the debts underlying the contracts.

    A derivative is a financial obligation whose value is derived from interest rates, the outcome of specific events, or the price of underlying assets such as debt, equities and commodities.

    Investors use credit-default swaps to bet on a company's creditworthiness or protect against non-payment. The contracts are the most common credit derivative.

    Like insurance, buyers pay an annual fee similar to a premium to protect a certain amount of debt against default for a specified number of years. In the event of a default, they get the face value of the bonds or loans.

    The settlement process for credit-default swaps is resource intensive, and typically requires faxed signatures. Banks and companies risk getting swamped by investors seeking settlement on their contracts in the event of a corporate default, Corrigan's group said.

    Derivatives traders must ensure they have systems and controls in place to keep up with the growth in their business, the U.K.'s Financial Services Authority said in a letter to companies this year.



    To contact the reporters on this story:
    Hamish Risk in London at hrisk@bloomberg.net;
    Justin Baer in New York at jbaer1@bloomberg.net
    Last Updated: August 24, 2005 14:34 EDT

    http://www.bloomberg.com/apps/news?...=top_world_news

    Friday, August 19, 2005

    Cocaine and Heroin Sales Must Be Down

    Feds Step Up Battle Against Meth Abuse

    By LUCAS L. JOHNSON II, Associated Press Writer Fri Aug 19, 7:50 PM ET

    NASHVILLE, Tenn. - Top officials from the Bush administration announced new efforts to battle methamphetamine abuse, including a training laboratory for police agencies and $16.2 million in grants to focus on treatment of addicts.

    Attorney General Alberto Gonzales, Health and Human Services Secretary
    Mike Leavitt and drug czar John Walters made the announcement Thursday at the Davidson County Drug Court and Treatment Center, the only drug court in the nation with a treatment and residential facility attached.

    "This war has to be strategically fought," Leavitt said. "It's about prevention, it's about treatment and strong enforcement."

    Meth, an addictive stimulant that affects the central nervous system, is usually produced in clandestine labs with over-the-counter cold tablets and common household chemicals.

    The administration had been criticized as favoring drug abuse prevention over more law enforcement in battling meth. But Walters said the president's $12.4 billion drug control budget is being used "in a balanced way."

    "We have to have the treatment and prevention, in addition to security resources," he said.

    Bush plans to grant higher priority to the prosecution of meth cooks and repeat offenders. The Justice Department will also establish a forensic science training laboratory to educate federal, state and local law enforcement officers and chemists in the production of meth so that they are better equipped to investigate meth cases.

    The initiative includes $16.2 million over three years for 11 new mental health and substance abuse services grants that focus on treatment of meth addiction.

    Tennessee Gov. Phil Bredesen, whose state has be among the hardest hit by the spread of meth, applauded the announcement.

    "We are not going to solve the problem overnight, but if we stay focused, we will make a difference," he said.

    Last year, Tennessee law enforcement authorities seized 1,574 labs across the state — the second-highest lab seizure rate in the nation, behind Missouri, according to officials. Tennessee law now requires pharmacies to put certain cold and sinus products that contain pseudoephedrine behind the counter.

    Sen. Jim Talent (news, bio, voting record), R-Mo., said in a statement that he is glad Bush recognizes the need for additional resources to fight meth, but the plan is does not go far enough to restrict products containing pseudoephedrine.

    Talent supports regulations that would move cold medicines containing the drug behind pharmacy counters and limit how much one person can buy to 7.5 grams a month.

    For Gregg Martin, 34, who is leaving Norman's residential treatment program after 15 months, treatment is the key that has given him another chance at life.

    "Without it, I'd be in the penitentiary, or dead," he said.

    Tuesday, August 16, 2005

    The Birds Are Falling

    Official: Venezuela Plane Passengers Dead

    By IAN JAMES, Associated Press Writer 36 minutes ago

    CARACAS, Venezuela - All 153 passengers aboard a commercial airliner that crashed Tuesday in eastern Venezuela were killed, the French civil aviation authority said.
    ADVERTISEMENT

    The West Caribbean Airways plane was en route from Panama to the Caribbean island of Martinique when its pilot reported trouble with both engines to Caracas' air control tower at around 3 a.m., said Francisco Paz, president of the National Aviation Institute.

    Airport authorities lost radio contact with the plane about 10 minutes later, when the plane was in the area of Machiques, 400 miles west of Caracas in the western border state of Zulia, he said.

    "Residents in the area said they heard an explosion," Paz said.

    Interior Minister Jesse Chacon said that based on reports from military aircraft flying over the area, "it's very unlikely there could be survivors."

    The plane had been chartered for tourists, and 152 passengers were listed on the flight plan, Paz said.

    Colombia's RCN Radio reported that West Caribbean said in a press release that there were also eight crew members aboard.

    The plane — an MD82, made by McDonnell Douglas — crashed 20 miles east of Venezuela's border with Colombia, according to the radio report.

    West Caribbean Airways, a Colombian airline, began service in 1998. In March, a twin-engine plane operated by the airline crashed during takeoff from the Colombian island of Old Providence, killing eight people.

    Two other crashes in Venezuela in the past year both involved military planes. In December, a military plane crashed in a mountainous area near Caracas, killing all 16 people on board. In August 2004, a military plane crashed into a mountain in central Venezuela, killing 25 people.