Pat Dollard | Young Americans

No Oil for Blood

by Frederick W. Kagan - (Weekly Standard)

This morning, I had the honor of testifying before the House Budget Committee on the situation in Iraq. The discussion was polite and civilized, and was a reminder that even now it is possible for people who disagree about what to do in Iraq to argue without raised voices and disagreeable language (apart from the Code Pink women, yelling for those who think that shouting opponents down is preferable to arguing with them). Congressman Brian Baird once again demonstrated that it is possible even for those who bitterly opposed the war to recognize the importance of doing the right thing now–as well as the possibility of crossing the Republican-Democrat sectarian divide on this issue. One question came up repeatedly in the hearing that deserves more of an answer than it got, however: Why, after all the assistance we’ve given to Iraq over the past five years, was the first major Iraqi oil deal signed with China and not with an American or even a western company? The answer is, in part, because three Democratic senators intervened in Iraqi domestic politics earlier this year to prevent Iraq from signing short-term agreements with Exxon Mobil, Shell, Total, Chevron, and BP.

The Iraqi government was poised to sign no-bid contracts with those firms this summer to help make immediate and needed improvements in Iraq’s oil infrastructure. The result would have been significant foreign investment in Iraq, an expansion of Iraqi government revenues, and an increase in the global supply of oil. One would have thought that leading Democratic senators who claim to be interested in finding other sources of funding to replace American dollars in Iraq, in helping Iraq spend its own money on its own people, and in lowering the price of gasoline for American citizens, would have been all for it. Instead, Senators Chuck Schumer, John Kerry, and Claire McCaskill wrote a letter to Secretary of State Rice asking her “to persuade the GOI [Government of Iraq] to refrain from signing contracts with multinational oil companies until a hydrocarbon law is in effect in Iraq.” The Bush administration wisely refused to do so, but the resulting media hooraw in Iraq led to the cancellation of the contracts, and helps to explain why Iraq is doing oil deals instead with China.

Senators Schumer, McCaskill, and Kerry claimed to be acting from the purest of motives: “It is our fear that this action by the Iraqi government could further deepen political tensions in Iraq and put our service members in even great danger.” For that reason, presumably, Schumer went so far as to ask the senior vice president of Exxon “if his company would agree to wait until the GOI produced a fair, equitable, and transparent hydrocarbon revenue sharing law before it signed any long-term agreement with the GOI.” Exxon naturally refused, but Schumer managed to get the deal killed anyway. But the ostensible premise of the senators’ objections was false–Iraq may not have a hydrocarbons law, but the central government has been sharing oil revenues equitably and there is no reason at all to imagine that signing the deals would have generated increased violence (and this was certainly not the view of American civilian and military officials on the ground in Iraq at the time). It is certain that killing the deals has delayed the maturation of Iraq’s oil industry without producing the desired hydrocarbons legislation.

Nor is it entirely clear what the senators’ motivations were. Their release ( [***I’ve added below] available along with their letter to Secretary Rice at the New York Observer quoted Senator McCaskill as follows: “‘It’s bad enough that we have no-bid contracts being awarded for work in Iraq. It’s bad enough that the big oil companies continue to receive government handouts while they post record breaking profits. But now the most profitable companies in the universe–America’s biggest oil companies–stand to reap the rewards of this no-bid contract on top of it all,’ McCaskill said. ‘It doesn’t take a rocket scientist to connect these dots–big oil is running Washington and now they’re running Baghdad. There is no reason under the sun not to halt these agreements until we get revenue sharing in place,’ McCaskill said.” So was this about what’s best for Iraq and American interests there or about nailing “big oil” in an election year?

Either way, like Barack Obama’s asking the Iraqi foreign minister to hold off on a strategic framework agreement until after the American election, it was nothing but harmful to American interests and our prospects in Iraq.

Schumer, Kerry, McCaskill Want Rice to Intervene in Iraq Oil Deals

by Katharine Jose | June 24, 2008 - (The Observer)

Earlier today (June 24, 2008 ) the Bush administration made clear they don’t intend to intervene in the negotiations between the Iraqi government and several large oil companies.

Chuck Schumer, along with Claire McCaskill and John Kerry, responded quickly with a letter to Condoleezza Rice asking her to prevent the deals from going forward until there is an oil-revenue sharing law.

Both Schumer and Kerry are on the Senate Finance Committee; Kerry and McCaskill are both surrogates for Barack Obama, whose campaign has been going after John McCain for McCain’s new, oil company-friendly position on offshore drilling.

Here’s the release along with the letter (which, weirdly, doesn’t include McCaskill’s name at the end of it).

SCHUMER, KERRY & McCASKILL SEEK TO BLOCK BIG OIL’S NO-BID CONTRACTS IN IRAQ UNTIL CENTRAL GOVERNMENT ADOPTS REVENUE-SHARING AGREEMENT

Four Western Oil Companies Poised To Ink ‘Servicing’ Agreements Before Iraqi Parliament’s Reaches Agreement On How To Distribute Oil Profits

Initial Deals Would Provide Oil Companies with Leg-Up For Lucrative Production Contracts

Senators: By Jumping Gun Before Oil Law Is Passed, Big Oil Threatens To Inflame Sectarian Unrest In Iraq; Say Rush To Enrich Big Oil Would Fan Perception U.S. Entrance Into Iraq Was Motivated By Oil

WASHINGTON, D.C. – U.S. Senators Charles E. Schumer (D-NY), John Kerry (D-MA) and Claire McCaskill (D-MO) demanded today that the Bush administration stop the Iraqi government from awarding no-bid contracts to four of the world’s biggest oil companies until the country’s parliament passes a national oil law and revenue-sharing agreement. The senators said that if the technical servicing agreements, which could be announced as soon as June 30, are allowed to go forward, it could inflame sectarian unrest in Iraq. They also expressed worry that the rush to reward major Western oil companies would fan the perception that U.S. involvement in there was motivated by oil.

The senators released a letter they sent to Secretary of State Condoleezza Rice denouncing the companies’ rush to sign so-called “technical servicing agreements” that would enrich Exxon Mobil, Shell, Total and BP. The senators said the oil companies ought to continue providing advice and support to Iraq on oil exploration on a pro bona basis, as they have done in the past, until the government passes a law formalizing the contracting and revenue-sharing process.

“The last thing Iraq needs is further impetus for the three factions to fight over billions in oil revenues, as American troops are caught in the crossfire.We must pressure the Iraqi Government to put all its ducks in a row before entering into contracts with oil companies,” Schumer said.

“Sustainable stability in Iraq should be the top priority, not no bid contracts for Big Oil. You’ll never have a political solution in Iraq if Iraqi politicians keep stalling instead of passing a fair oil law that equitably distributes revenues among Sunnis, Shiites, and Kurds. If the Iraqi government insists on first extending no-bid oil contracts to the big oil companies, political tensions in the region could be ratcheted up to even more dangerous levels. The timing of these contracts has cost us leverage we need to push through the oil laws and runs the real risk of inflaming sectarian tensions. It’s not in our security interests for anyone to think that the same Western oil companies which quietly advised the Iraqi oil ministry were given an insider’s advantage on deals that could result in much more lucrative long-term contracts,” Kerry said.

“It’s bad enough that we have no-bid contracts being awarded for work in Iraq. It’s bad enough that the big oil companies continue to receive government handouts while they post record breaking profits. But now the most profitable companies in the universe – America’s biggest oil companies – stand to reap the rewards of this no-bid contract on top of it all,” McCaskill said. “It doesn’t take a rocket scientist to connect these dots – big oil is running Washington and now they’re running Baghdad. There is no reason under the sun not to halt these agreements until we get revenue sharing in place,” McCaskill said.

It is uncommon for oil companies to receive no-bid contracts of this type. It is especially unusual in this case since more than 40 companies were seeking the servicing deal that Iraq is prepared to give to the four companies. Iraq’s central government has defended the award process, saying Exxon Mobil, Shell, Total and BP have provided free advice and support over the past two years, enabling the companies and the government to build a close relationship.

Though the servicing agreements would not come with any ownership of the oil that the companies may help extract, experts say the pacts would put the companies “first in line” to receive the lucrative production contracts that Iraq will eventually award. The senators said those profit motivations do not supplant the need for the country to pass am oil law, which is one of the Bush administration’s own “benchmarks for reconciliation.”

At a Senate Judiciary Committee hearing last month, Schumer pressed oil executives to put the deals on hold until the government struck a compromise on an oil law and revenue-sharing agreement. The companies balked. “I’m not going to make any commitment of that type,” Stephen Simon, Exxon’s senior vice president, said in response to Schumer.

A copy of the senators’ letter to Rice appears below.

June 23, 2008

The Honorable Condoleezza Rice

Secretary of State

2201 C Street NW

Washington, DC 20520

Dear Secretary Rice:

We write to express our concern that the Government of Iraq (GOI) is about to sign no-bid oil and gas contracts with multinational oil companies, including Exxon Mobil, Shell, Total, Chevron, and BP, to service Iraq’s largest hydrocarbon fields before an Iraqi hydrocarbon revenue sharing law has been signed. It is our fear that this action by the Iraqi government could further deepen political tensions in Iraq and put our service members in even great danger. We urge you to persuade the GOI to refrain from signing contracts with multinational oil companies until a hydrocarbon law is in effect in Iraq.

President Bush has stated numerous times the importance of the passage of national hydrocarbon law that would “[g]ive every Iraqi citizen a stake in the country’s economy.” At this time, the GOI currently does not have in place a revenue sharing law that would fairly allocate any revenue gained from Iraq’s lucrative hydrocarbon fields between the three major ethnic groups in Iraq. We fear that any such agreements signed by Iraq’s Hydrocarbon Ministry without an equitable revenue sharing agreement in place would simply add more fuel to Iraq’s civil war.

Last month, Senator Schumer personally asked Stephen Simon, Exxon’s senior vice president, if his company would agree to wait until the GOI produced a fair, equitable, and transparent hydrocarbon revenue sharing law before it signed any long-term agreement with the GOI. He stated unequivocally that they would not wait for any such law to be passed before they signed any agreements for hydrocarbon production. We find it shocking that Exxon would put its own commercial interest above the national security interests of the United States and Iraq.

We are equally troubled by the fact that you recently stated, “[t]he United States Government has stayed absolutely out of the matter of the awarding of Iraqi oil contracts. It’s a private sector matter.” Without an oil law in place, any formal production contracts with Exxon Mobil et al. threaten to heighten the tension within Iraq between these groups at the same time that American servicemembers are fighting night and day to reduce the levels of violence. This is clearly a matter of national security, which we believe should trump any and all commercial interests.

The GOI maintains that the revenue from its hydrocarbon fields would be used for reconstruction. However, it is not clear what, if any, success the GOI has had in spending its existing hydrocarbon revenues on reconstruction efforts. Nor is it clear that these reconstruction efforts would be targeted equitably to all the major ethnic groups in Iraq. We know that over the course of 2007 and 2008, Iraq will realize roughly $100 billion in oil revenues, most of which will not be spent on reconstruction due to bureaucratic incompetence. And while the GOI argues that the pending contracts are short-term in duration, they will surely pave the way for longer production-sharing agreements between the GOI and these multinational hydrocarbon companies.

The passage of an Iraqi hydrocarbon revenue sharing law is a critical benchmark that would indicate to the American people the Iraqi government’s commitment to promoting long-term political and economic stability. It is critical that the administration not lose sight of this important goal and refrain from endorsing actions by the Iraqi government that could further deepen political tension. A fair, equitable, and transparent hydrocarbon revenue sharing law could promote desperately needed political and sectarian reconciliation in Iraq. We ask that you work with the GOI to ensure that they do not sign any agreements relating to oil or gas until they have passed a fair, equitable, and transparent hydrocarbon revenue sharing agreement that benefits the Sunni Arabs, Shia Arabs, Kurds, and all other Iraqi citizens.

Sincerely,

Senator Charles E. Schumer

Senator John Kerry