It began with a character known as "Mr. 5%"– Calouste Gulbenkian — who, in 1925, slicked King Faisal, neophyte ruler of the country recently created by Churchill, into giving Gulbenkian’s "Iraq Petroleum Company" (IPC) exclusive rights to all of Iraq’s oil. Gulbenkian flipped 95% of his concession to a combine of western oil giants: Anglo-Persian, Royal Dutch Shell, CFP of France, and the Standard Oil trust companies (now ExxonMobil and its "sisters.") The remaining slice Calouste kept for himself — hence, "Mr. 5%."
The oil majors had a better use for Iraq’s oil than drilling it — not drilling it. The oil bigs had bought Iraq’s concession to seal it up and keep it off the market. To please his buyers’ wishes, Mr. 5% spread out a big map of the Middle East on the floor of a hotel room in Belgium and drew a thick red line around the gulf oil fields, centered on Iraq. All the oil company executives, gathered in the hotel room, signed their name on the red line — vowing not to drill, except as a group, within the red-lined zone. No one, therefore, had an incentive to cheat and take red-lined oil. All of Iraq’s oil, sequestered by all, was locked in, and all signers would enjoy a lift in worldwide prices. Anglo-Persian Company, now British Petroleum (BP), would pump almost all its oil, reasonably, from Persia (Iran). Later, the Standard Oil combine, renamed the Arabian-American Oil Company (Aramco), would limit almost all its drilling to Saudi Arabia. Anglo-Persian (BP) had begun pulling oil from Kirkuk, Iraq, in 1927 and, in accordance with the Red-Line Agreement, shared its Kirkuk and Basra fields with its IPC group — and drilled no more.
The following was written three decades ago:
Although its original concession of March 14, 1925, cove- red all of Iraq, the Iraq Petroleum Co., under the owner- ship of BP (23.75%), Shell (23.75%), CFP [of France] (23.75%), Exxon (11.85%), Mobil (11.85%), and [Calouste] Gulbenkian (5.0%), limited its production to fields constituting only one-half of 1 percent of the country’s total area. During the Great Depression, the world was awash with oil and greater output from Iraq would simply have driven the price down to even lower levels.
Plus ça change…
When the British Foreign Office fretted that locking up oil would stoke local nationalist anger, BP-IPC agreed privately to pretend to drill lots of wells, but make them absurdly shallow and place them where, wrote a company manager, "there was no danger of striking oil." This systematic suppression of Iraq’s production, begun in 1927, has never ceased. In the early 1960s, Iraq’s frustration with the British-led oil consortium’s failure to pump pushed the nation to cancel the BP-Shell-Exxon concession and seize the oil fields. Britain was ready to strangle Baghdad, but a cooler, wiser man in the White House, John F. Kennedy, told the Brits to back off. President Kennedy refused to call Iraq’s seizure an "expropriation" akin to Castro’s seizure of U.S.-owned banana plantations. Kennedy’s view was that Anglo-American companies had it coming to them because they had refused to honor their legal commitment to drill.
But the freedom Kennedy offered the Iraqis to drill their own oil to the maximum was swiftly taken away from them by their Arab brethren.
The OPEC cartel, controlled by Saudi Arabia, capped Iraq’s production at a sum equal to Iran’s, though the Iranian reserves are far smaller than Iraq’s. The excuse for this quota equality between Iraq and Iran was to prevent war between them. It didn’t. To keep Iraq’s Ba’athists from complaining about the limits, Saudi Arabia simply bought off the leaders by funding Saddam’s war against Iran and giving the dictator $7 billion for his "Islamic bomb" program.
In 1974, a U.S. politician broke the omerta over the suppression of Iraq’s oil production. It was during the Arab oil embargo that Senator Edmund Muskie revealed a secret intelligence report of "fantastic" reserves of oil in Iraq undeveloped because U.S. oil companies refused to add pipeline capacity. Muskie, who’d just lost a bid for the Presidency, was dubbed a "loser" and ignored. The Iranian bombing of the Basra fields (1980-88) put a new kink in Iraq’s oil production. Iraq’s frustration under production limits explodes periodically.
In August 1990, Kuwait’s craven siphoning of borderland oil fields jointly owned with Iraq gave Saddam the excuse to take Kuwait’s share. Here was Saddam’s opportunity to increase Iraq’s OPEC quota by taking Kuwait’s (most assuredly not approved by the U.S.). Saddam’s plan backfired. The Basra oil fields not crippled by Iran were demolished in 1991 by American B-52s. Saddam’s petro-military overreach into Kuwait gave the West the authority for a more direct oil suppression method called the "Sanctions" program, later changed to "Oil for Food." Now we get to the real reason for the U.N. embargo on Iraqi oil exports. According to the official U.S. position:
Sanctions were critical to preventing Iraq from acquiring equipment that could be used to reconstitute banned weapons of mass destruction (WMD) programs.
How odd. If cutting Saddam’s allowance was the purpose, then sanctions, limiting oil exports, was a very suspect method indeed. The nature of the oil market (a cartel) is such that the elimination of two million barrels a day increased Saddam’s revenue. One might conclude that sanctions were less about WMD and more about EPS (earnings per share) of oil sellers.
In other words, there is nothing new under the desert sun. Today’s fight over how much of Iraq’s oil to produce (or suppress) simply extends into this century the last century’s pump-or-control battles. In sum, Big Oil, whether in European or Arab-OPEC dress, has done its damned best to keep Iraq’s oil buried deep in the ground to keep prices high in the air. Iraq has 74 known fields and only 15 in production; 526 known "structures" (oil-speak for "pools of oil"), only 125 drilled.
And they won’t be drilled, not unless Iraq says, "Mother, may I?" to Saudi Arabia, or, as the James Baker/Council on Foreign Relations paper says, "Saudi Arabia may punish Iraq." And believe me, Iraq wouldn’t want that. The decision to expand production has, for now, been kept out of Iraqi’s hands by the latest method of suppressing Iraq’s oil flow — the 2003 invasion and resistance to invasion. And it has been darn effective. Iraq’s output in 2003, 2004 and 2005 was less than produced under the restrictive Oil-for-Food Program. Whether by design or happenstance, this decline in output has resulted in tripling the profits of the five U.S. oil majors to $89 billion for a single year, 2005, compared to pre-invasion 2002. That suggests an interesting arithmetic equation. Big Oil’s profits are up $89 billion a year in the same period the oil industry boosted contributions to Mr. Bush’s reelection campaign to roughly $40 million.
That would make our president "Mr. 0.05%."
A History of Oil in Iraq
Suppressing It, Not Pumping It
- 1925-28 "Mr. 5%" sells his monopoly on Iraq’s oil to British Petroleum and Exxon, who sign a "Red-Line Agreement" vowing not to compete by drilling independently in Iraq.
- 1948 Red-Line Agreement ended, replaced by oil combines’ "dog in the manger" strategy — taking control of fields, then capping production–drilling shallow holes where "there was no danger of striking oil."
- 1961 OPEC, founded the year before, places quotas on Iraq’s exports equal to Iran’s, locking in suppression policy.
- 1980-88 Iran-Iraq War. Iran destroys Basra fields. Iraq cannot meet OPEC quota. 1991 Desert Storm. Anglo-American bombings cut production.
- 1991-2003 United Nations Oil embargo (zero legal exports) followed by Oil-for-Food Program limiting Iraqi sales to 2 million barrels a day.
- 2003-? "Insurgents" sabotage Iraq’s pipelines and infrastructure.
- 2004 Options for Iraqi OilThe secret plan adopted by U.S. State Department overturns Pentagon proposal to massively in crease oil production. State Department plan, adopted by government of occupied Iraq, limits state oil company to OPEC quotas.
This article is excerpted from Greg Palast’s new book, " Armed Madhouse" (Dutton Adult, 2006).