Did The U.S. Plan On Privatizing Iraq’s Oil After The 2003 Invasion?15/08/2012 20:16
By Joel Wing*
A widely held belief is that the United States went to war with Iraq for oil. One variation of this argument is that America wanted to open up Iraq’s oil industry since it had been nationalized in the 1970s, and cut off from the world by over a decade of international sanctions. While there was talk within the White House and think tanks to have foreign oil companies move in after the fall of Saddam Hussein it didn’t happen right away. When the U.S. had its chance to privatize the energy sector under the Coalition Provisional Authority (CPA) it decided not to, because of the possible negative affects that would have upon Iraqi and world opinion, and due to international law. If the United States did not open Iraq’s oil to foreign investment when it had control of the country, it undermines the argument that was a goal of the Bush administration.
Before the 2003 invasion of Iraq, there was some talk about taking advantage of the country’s oil after the fall of Saddam Hussein. In 2002 for instance, the Heritage Foundation argued that the U.S. should open Iraq’s oil to foreign investment. One analyst from that think tank believed that the increased petroleum production that would ensue from major petroleum companies entering Iraq could break the hold of OPEC over the world energy market. That idea was popular amongst some neoconservatives within the administration as well. The State Department’s Future of Iraq Project also brought up privatization, arguing that the state-run system was hindering Iraq’s potential. Elliott Abrams, the Senior Director for Near East and North African Affairs at the National Security Council suggested that the U.S. actually take over the oil industry after the war. In the end, President Bush announced that Iraqi oil would be used for the benefit of the country just before the invasion started in March 2003. Administration officials said that meant petroleum revenue would be used to help rebuild the country. In the end, it appeared that the White House had discussions about what to do about Iraq’s oil, and outside think tanks made their own suggestions as well, but that the only real decision made was that petroleum would help finance reconstruction. That would not be surprising since pre-war planning by the administration was so uncoordinated and ad hoc in nature that it overlooked many important issues the U.S. would be faced with after the invasion.
In April 2003, the Coalition Provisional Authority (CPA) was given control of Iraq, and got down to the business of deciding the fate of Iraq’s oil industry. Initially, the CPA’s first priority was to repair the damage done to the oil infrastructure by the war and the looting that took place afterward, so that exports could resume, and the country could begin to start earning money again for its huge reconstruction needs. Then in May, Philip Carroll, the former CEO of Shell, was appointed to head an advisory board to the Iraqi Oil Ministry. He came in saying that he would not support the privatization of the industry. He told the press that petroleum was such a part of Iraq’s national identity that to privatize it would be an affront to the country. He conveyed that message to the head of the CPA Paul Bremer. CPA officials shared his concern, and were also unwilling to make any major changes to the industry out of fear that it would fuel charges that the war was about oil. In September, these ideas were put into law with Coalition Provisional Authority Order Number 39. It was meant to encourage foreign investment in Iraq, but barred that from happening in natural resources. This was in line with international law, which prohibits occupying powers from giving oil concessions. As a result, petroleum remained a nationalized industry. The CPA ran Iraq for fourteen months. If the goal of the United States was to open up Iraq’s natural resource to foreign corporations there would have been no better time to do it than during the CPA period. Instead, the Coalition kept oil under government control. Some have argued that the U.S. was waiting for the Iraqis to pass their own oil law after the Authority ended its mandate, but that has not happened either, because of political disputes. Instead the Oil Ministry has gone ahead, and held several auctions for oil and gas fields offering service contracts that restrict profits for corporations, while the Kurdistan Regional Government has followed an independent policy. In both cases however, the government remains the manager of the country’s resources.
The argument that the 2003 invasion was about controlling Iraq’s oil appears to be a compelling one, but falters when compared to what actually happened. There were definitely talks both within and without the Bush administration that the U.S. should take advantage of Iraq’s great oil wealth. Ideas were thrown about to privatize the industry, and allow foreign companies to move in. No real decision appeared to be made before the invasion started however. When the Coalition Provisional Authority was created to govern Iraq it decided to maintain petroleum as a nationalized business. While Iraq has tried to shape oil policy since then, it has largely let the Iraqis determine their own policy. That's why when major international firms finally returned to Iraq in numbers in 2009, they signed contracts that greatly favored the government. Then Oil Minister Hussein Shahristani wanted to make sure that the country retained as much of its wealth as possible, and was largely successful. The result is that today, Iraq’s energy sector continues to be part of the state-run economy. .
*With an MA in International Relations, Joel Wing has been researching and writing about Iraq since 2002. His acclaimed blog, Musings on Iraq, is currently listed by the New York Times and the World Politics Review. In addition, Mr. Wing’s work has been cited by the Center for Strategic and International Studies, the Guardian and the Washington Independent.