Private Empire: ExxonMobil and American Power (76 page)

Then, too, fierce Iraqi nationalism after the American invasion ensured that no elected government in Baghdad could blithely trade away ownership of Iraqi oil to foreign companies, even if doing so might enrich the government’s coffers. Iraqis ratified a new constitution that declared that the country’s oil belonged solely to the Iraqi people.

Shahristani’s “clean games” visit to Washington in 2006 signaled, however, that the Iraqi oil ministry had gradually come to recognize it could not restore Iraqi oil production to acceptable levels on its own. After the talks with Energy secretary Bodman and the oil company lobbyists, Shahristrani soon negotiated what he called “technical service agreements” with ExxonMobil and other companies. Under its deal, ExxonMobil would evaluate how to raise the rate of oil production in particular Iraqi fields.

The corporation used its access to develop and present to Iraqi officials an ambitious, unpublicized plan for ExxonMobil’s reentry into the country: a $100 billion “transformative” program under which ExxonMobil would lead huge, staged investments in Iraq’s oil and gas fields. These upstream investments would be integrated with similarly ambitious downstream projects—refineries and petrochemical complexes. In essence, ExxonMobil proposed a strategic position in the Iraqi oil industry comparable to its dominant position in Qatar. The scale of the plan was bold—and also politically unrealistic. International oil investments in Iraq brought to the surface all of the ills and paralysis of Iraq’s postinvasion politics. ExxonMobil’s PowerPoint slides with photographs of shiny infrastructure, arrows showing the benefits of integration, and lots of big dollar numbers could not change that.
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Whatever deals emerged, Shahristani’s oil ministry wanted to pay the companies in oil, not cash, so as to avoid the complications of negotiating in Baghdad with a separate political fiefdom at the Ministry of Finance. It wasn’t clear, however, that companies that received oil from the deals could sell it freely, as they had under authority of the now-defunct Coalition Provisional Authority. Kuwait’s government had won a war reparations award against Iraq’s government, to pay for losses caused by Saddam Hussein’s 1990 invasion. The enforcement of this award meant that cash from the sale of Iraqi oil normally ran through United Nations–authorized accounts in New York, where a portion was garnered to pay Kuwait. It was not clear whether ExxonMobil’s sales of Iraqi oil might be subject to the same garnishing. Zandona and other ExxonMobil lobbyists repeatedly pressed the Bush administration to sort out the issue at the United Nations and with Kuwait and Iraq, so that the corporation could lift Iraqi crude without any legal ambiguity.

If Iraq’s greatest sensitivity was sovereignty, ExxonMobil’s imperative was reserve replacement—the need to be able to continually book oil reserves in a manner approved by the Securities and Exchange Commission. If Iraq’s oil opening were to make a difference to the corporation, deals had to be structured so that ExxonMobil could book reserves.

Initially, after the war began, ExxonMobil and other major American oil companies pushed the Bush administration to persuade Iraq’s government to adopt production-sharing agreements or other contract terms that would allow private oil companies to book Iraqi reserves for Wall Street. An early study of Iraq’s oil industry carried out for the Coalition Provisional Authority by the consulting firm BearingPoint, Inc., suggested to Iraqi oil officials the benefits of production-sharing deals; the study cited nations such as Azerbaijan as examples.

In Baghdad and Washington, Bush administration officials told their Iraqi counterparts that contract matters were up to them, said a State Department official involved, but they also made clear to the Iraqis, as the official put it, “You lack capital, you lack technology, and your workforce needs to be reeducated. You have to offer some incentives to allow the companies to come in. Of course, the whole issue is booked reserves.”
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W
hat hope ExxonMobil had to own a share of Iraq’s oil rested on the long, costly efforts of the Bush administration to remake Iraq’s oil policies after the invasion. From the beginning, executives from the American oil industry, almost all of them from Texas, had led the Bush administration’s efforts; they volunteered for the mission, uncompensated. Philip Carroll, the former Shell U.S.A. executive and friend of George H. W. Bush, who had been recruited before the 2003 invasion to advise Iraqi and American officials about Iraq’s oil sector, had resisted the Bush administration’s most ardent free-market ideologists, particularly those who advocated outright privatization of Iraq’s state-owned oil companies. When analysts at the conservative Heritage Foundation called the privatization of Iraq’s oil “a no-brainer,” Carroll quipped, “It’s a no-brainer: Only someone with no brains would think of that.”
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After Carroll left the Coalition Provisional Authority, a succession of other American oil industry veterans arrived in Baghdad one after another to serve as senior advisers on oil restoration and policy: Rob McKee, who had run upstream operations at Conoco, and Mike Stinson, another former Conoco executive. They slept in trailers in the Green Zone, worked in dusty sections of the Republican Palace, endured nightly mortar rounds, and braved ambushes when they rolled in armored sport-utility vehicles across town to the oil ministry for meetings. Robert Morgan, a British oil industry veteran, died in one such insurgent ambush. Diaries the American oilmen kept during their deployments as advisers depict a dizzying atmosphere in which a few patriotic, talented Iraqi oil technocrats struggled in an environment of political dysfunction, rumors of corruption, and constant violence. On the American side, McKee and Stinson, who considered themselves conservative patriots called to public duty, and who carried firearms outside the Green Zone to protect themselves, found their idealism sapped by petty bureaucratic infighting in Washington and reams of federal government paperwork.

The American oil advisers in Baghdad after 2003 knew well what their colleagues in the international oil business wanted from Iraq: legal and financial clarity, and contract terms that allowed bookable reserves. If they had any doubts about that, oil executives arrived regularly in Baghdad to lobby them. Sam Laidlaw, a Chevron executive, turned up in Baghdad early on “to see if he could represent a consortium of American companies to put possible [production-sharing contract] terms in front of the Iraqis” and to “find the right kind of financial vehicle that would get around the U.N.” controls on Kuwaiti claims.

When Iraqi political leaders heard that sort of talk about foreign ownership of the country’s oil, it only inflamed the “politics or kind of the grassroots emotional issues of ownership of a national resource,” recalled Norm Szydlowski, a Chevron veteran who worked with McKee and Stinson as an adviser in Baghdad. “Many people [were] convinced that the U.S. presence and the coalition [was] here to ‘take their oil.’”
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The American oil advisers were wealthy men at the ends of their careers; they were not in Baghdad to make money, but rather to have an adventure and serve the Bush administration. Their outlook about the bookable reserve question was that, first, it was up to the Iraqis to decide, but second, in the long run, what was good for Iraq probably would also be good for Western oil companies. It seemed to the American advisers that Iraq’s democratic government should first establish a strong national oil company, comparable to the ones in Saudi Arabia, Kuwait, and many other Middle Eastern nations. A unified, integrated Iraqi national oil company and its political masters could provide Baghdad’s politicians with a sounder footing to decide whether, as in Africa and some parts of Southeast Asia and Central Asia, the government wanted to invite foreign companies in and allow them to book some of Iraq’s oil, in exchange for capital and up-to-date technology, or try to go it alone, perhaps with service companies such as Halliburton and Schlumberger. “Although I’m a free-marketer and a capitalist,” Rob McKee observed, “it was very apparent to me and everybody else that Iraq needed a central energy policy.”
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That had to precede decisions about sharing reserves with international companies.

The invasion had shattered the old Iraqi state, effectively breaking its politics into sectarian and regional pieces tied together by a weak, continually renegotiated, inexperienced regime in Baghdad, one lobbied heavily not only by the United States, but also by Iran. Year after year, the country’s new leaders talked about oil policy reform, but they could not agree on a national oil law.

During this interregnum, while ExxonMobil and the other international majors hunkered down in Amman and Dubai, small-time operators and freelance wildcatters—Israelis working through Turkish front companies, Russians, and American and British adventurers—turned up in the Green Zone looking for fast deals. Some individual wildcatters drove themselves by car from Jordan to Baghdad, barreling down insurgent-controlled highways, “dumb and courageous at the same time,” as McKee put it.

The adventurers were aided by splits in Iraqi decision making about how to sell oil. Coalition Provisional Authority Order Number 39 banned new contracts that would exploit Iraq’s natural resources until an elected government in Baghdad could be seated under a new democratic constitution. Iraq’s northern Kurdistan minority, however, which had organized itself under an entity it called the Kurdish Regional Government, ignored this edict.

The best Iraqi oil fields lay in the Shiite-dominated south of the country and employed export pipelines leading to the Persian Gulf. The northern Kurdish regions contained large fields of heavier oil and natural gas, but options for overland export were limited. After 2005, Kurdish leaders interpreted Iraq’s new constitution to mean that oil production would be “locally managed by the people living in the regions,” as the Kurdish Regional Government’s minister of natural resources, Ashti Hawrami, put it.
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The Shiite-dominated government in Baghdad declared that Kurdish decision to be illegal and unconstitutional, but it found itself powerless to stop the K.R.G. from letting contracts. To attract risk takers to its legally disputed fields, the Kurds let production-sharing contracts with fully bookable reserves on terms designed to excite Western capitalists. Early takers included a small Norwegian producer, D.N.O., and a firm called Hunt Oil, headquartered in Dallas, which had multiple personal ties to the Bush White House.

Shahristani and other oil ministry officials in Baghdad warned ExxonMobil, Chevron, Shell, BP, and other major international firms that if they tasted Kurdish crude, they would never, ever see a drop of Iraq’s bigger oil fields in the south. They also declared the production-sharing contracts let to D.N.O. and Hunt to be illegal under Iraqi law.

Oliver Zandona and other industry lobbyists pushed the Bush administration in Washington after 2005 to sort out the Kurdish mess. “The policy question before us was, ‘What do you do with these contracts?’” recalled a Bush administration official involved in the discussions. “I have to say, I think we really screwed that one up.”
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By failing to make absolutely clear that Western oil companies should not cut independent deals with the Kurds, and by winking at the Kurdish contracts that had already been negotiated, the administration sent mixed signals to companies and Iraqi political leaders alike, and may have prolonged the country’s debilitating stalemate over oil sharing.

The Kurds were the most pro-American faction in Iraq, however. There was a natural bias inside the Bush administration to cut the Kurdish Regional Government slack because of all the ways Kurds cooperated with Bush’s state-building project.

During 2005 and 2006, Meghan O’Sullivan, the influential National Security Council official overseeing Iraq policy for the Bush administration, shepherded through a formal, classified, interagency policy review on Iraq strategy, including a subsection on Iraq’s oil. The aim was to promote oil as a means of finance and political unity for the struggling Iraqi state. That policy was formalized in 2006, briefed to President Bush, and dispatched to embassies worldwide by State Department cable. The Bush administration urged Iraq to negotiate a single national oil law that would account for Kurdish autonomy, clarify the legality of the Kurdish wildcatter contracts, and provide a basis for large-scale investment in the future by the likes of ExxonMobil.

As a practical matter, however, because there was no sanction placed on companies such as D.N.O. and Hunt Oil that were cutting side deals to pump Kurdish crude, the Bush administration effectively signaled neutrality on the matter—as if what was at issue in the Kurdish sidebar contracts was just a business dispute, not a potential fault line through Iraq’s ethnic and sectarian fabric. A firmer policy would have sanctioned D.N.O. and Hunt for jeopardizing Iraqi unity or banned their dealings outright under American law.

The Hunts were colorful adventurers whose private, family-run firm had chased oil dreams in hard places since 1934. The Hunt brothers famously cornered the world’s silver market at one stage, precipitating a crash. Ray L. Hunt, a conservative maverick, became chief executive in 1974; later, he turned operations over to his son, Hunter L. Hunt, though the father remained an active player. By the time of George W. Bush’s Iraq War, Hunt Oil described itself as a firm that specialized in “unconventional” resource deals; it owned and produced oil in the tribal hinterlands of Yemen, among other places. Risky Kurdish production-sharing contracts appealed to the firm’s traditions and instincts.