US to take Iraq out of OPEC?

I have been hearing reports that the US are planning on removing Iraq from OPEC. This according to leading energy experts will "be very bad for Iraq and the region. It will destabilize the region and make Iraq dependent on the US for its survival,"

A behind-the-scenes look at America's controversial plan to rebuild Iraq
22-05-03
Washington insiders knew US President George W. Bush was serious about toppling Saddam Hussein -- regardless of the diplomatic endgame -- more than a month before the decision to launch the night time decapitation strike against the Iraqi leadership that signalled the start of "Operation Iraqi Freedom."
Six weeks before the first bombs fell on Baghdad, the International Resources Group (IRG), a small, Washington-based firm, quietly won a $ 7 mm contract from the US Agency for International Development (USAID) to help the agency plan and manage its post-war operations in Iraq. The date was 7 February, just two days after US Secretary of State Colin Powell's first presentation to the United Nations on Iraq's alleged failure to disarm.
The day after the award was made, UN Chief Weapons Inspector Hans Blix arrived in Baghdad for a new round of talks with top Iraqi officials. The insiders knew the bombers would be flying sooner rather than later when the IRG, a company with broad experience in foreign relief and post-war reconstruction programs, came into the picture.

But the American public didn't began to grasp the extent of the administration's planning until early March, when news of the IRG contract leaked to the media. By then, USAID had asked a handful of undisclosed companies to bid on the most lucrative project of them all: a deal worth close to three-quarters of a billion dollars to rebuild Iraq's critical infrastructure (including roads, bridges and power plants) over 12-18 months.
The secrecy surrounding this usually open procurement process sparked a furious backlash from US Democrats looking for any chink in Bush's unassailable political armour. US taxpayers, after all, are footing the bill for the initial reconstruction contracts. Already divided over Iraq, some Americans accused the Bush administration of orchestrating the war for financial gain. And by not opening up the bidding process to more US companies, some analysts say, USAID also enraged many supporters of the war.

The one thing all sides -- the administration's Republican backers, its Democratic critics, contractors, "free Iraqis" and public-interest watchdogs alike -- agree on is that the stakes are too high for a single major misstep: The future of the Bush administration (perhaps even America's claim to leadership of the "free world") hinges on the fate of the Iraqi nation.
What most Americans do not know is that the competition for Iraqi reconstruction began long before Bush started rattling his war sabre last autumn, before Powell reportedly convinced the president his best bet was to try for a UN resolution first rather than going it alone. While formal rebuilding plans were being drafted in the fall of 2002, preliminary discussions had begun several months earlier.
"In June of last year, the State Department got in touch with me and said, 'We want you to come to be part of the economy and infrastructure work group,'" says Rubar Sandi, president of the US-Iraq Business Council, which was founded shortly thereafter. "We conducted studies in every sector: banking, taxes, job creation, currency, electricity, housing, transportation, water, sanitation. We've written papers on many sectors and given the State Department suggestions on what to do -- and how much it costs to start rehabilitation for each sector."

Sandi was one of dozens of Iraqis the administration enlisted, and by late September, the State Department had created a project -- broken up into working groups -- called "The Future Of Iraq." Each group consisted of more than a dozen experts labelled "free Iraqis" by the US. Among them were expatriate businessmen, scholars and former officials with the right mix of experience and on-the-ground knowledge of Iraq to help assess what work needed to be done after the war.
The agendas of the two most important working groups underscore the State Department's ambitions. The "Infrastructure and Economic" group addressed "economic policy, restoration of transportation, electricity and communications infrastructure, job creation, debt and reparations, conversions of military industry to civilian uses, and foreign direct investment," according to State Department papers. More importantly, the "Oil and Energy" group discussed "the current state of Iraq's oil and energy sectors, scenarios for the restoration and modernization of Iraq's oil fields and other essential energy infrastructure; and management of the energy sector to meet the needs of the Iraqi people in the post-Saddam era."

These were essentially the blueprints for a post-war Iraqi administration, and once Powell's teams had done the legwork, Defence Secretary Donald Rumsfeld was ready to step in. On 20 January, President Bush formalized the process, ordering the creation of a post-war planning office within the Defence Department, calling it the Office of Reconstruction and Humanitarian Assistance (ORHA).
To head ORHA, Bush tapped Jay Garner, a retired army lieutenant general who worked with Rumsfeld in the late 1990s and who also has experience in northern Iraq. Garner's boss would be the head of the US Central Command, Tommy Franks, the man who led coalition forces into battle in the invasion of Iraq.
All this took place with little fanfare while the media was distracted by daily developments on the diplomatic front. Weapons inspections were progressing slowly, and Blix had just told the world that he had yet to find a "smoking gun" to prove Iraq was violating UN resolutions.

In the beginning, the OHRA was billed primarily as a post-war humanitarian relief agency, but today is in charge of every facet of post-war civil governance, from overseeing international aid organizations to determining the fate of Iraqi oil once it starts flowing again.
Ironically, the administration came under fire from two sides over the timing of its post-war planning. Members of Congress faulted the president for waiting too long to plan Iraq's future -- and for leaving the American public in the dark about the long-term commitment America was getting into. On 23 February, Under Secretary for Defence Policy Douglas Feith explained the long wait, saying the government didn't want to foster a "misimpression" that the Bush administration wanted to invade Iraq without first trying to disarm Hussein peacefully.
On the other hand, those who criticized the government for planning too soon were told that past nation-building efforts had failed because too much time had passed between ceasefire and reconstruction. Officials openly said they did not want to repeat mistakes made in Afghanistan, where it took so long to restore essential services that America's image as a "liberating force" was tarnished.

To understand why the issue of Iraq's reconstruction is so controversial, and how the comparison with Afghanistan is limited, one need only look at the sums involved. Rebuilding the damage caused by three wars and 12 years of economic sanctions in Iraq is expected to be the largest and most lucrative reconstruction program since the Marshall Plan that helped rebuild Western Europe after World War II.
Iraq has the world's second-largest oil reserves after Saudi Arabia (perhaps as much as 11 % of the remaining global supply, according to some estimates), and US officials have not been shy about pointing out that oil revenues could be used to cover reconstruction costs.
Just how high those costs will climb remains an open question, with estimates ranging wildly from $ 10 bn to $ 500 bn. Experts say about $ 5 bn-$ 8 bn a year will be needed just for reconstruction in the next three to five years. Add to that the cost of setting up a new Iraqi government and maintaining US troops for the two-year Iraqi sojourn to which the administration has committed itself, and that figure quickly swells to $ 25 bn-$ 30 bn annually.

Part of the confusion is due to the US government's reluctance to publish its own estimates. In the $ 79 bn supplementary war budget approved by Congress in April, the administration allocated $ 2.4 bn for humanitarian and reconstruction efforts in Iraq, of which $ 1.7 bn is purely for reconstruction. But this figure only covers expenses in the next five months, and administration officials are calling it a drop in the bucket.
Another problem with the estimates is that existing financial data on Iraq is out of date. The International Monetary Fund conducted its last assessment in 1983, reporting on an anaemic economy decimated by the first three years of war with Iran.

In 2000, UN experts visiting Iraq said less than half of the total area available for agriculture was usable due to excessive soil salinity and water logging caused by poor irrigation and drainage of the southern marshes. They also reported severe corrosion and pollution in the oil fields, concluding that some of the oil wells had been damaged beyond repair.
The Economist Intelligence Unit pegged the pre-March size of the Iraqi economy at about $ 28 bn per year, far below where it stood prior to the 1991 Gulf War, in the wake of brutalsanctions cutting Iraq off from most sources of foreign revenue. Of the $ 28 bn, about $ 15 bn-$ 16 bn came from oil exports under the UN's oil-for-food program, and another $ 2 bn-$ 3 bn from oil smuggling. The job ahead is to bring Iraq's oil revenues up to pre-Gulf War levels of more than $ 20 bn -- and turn the country into one of the wealthiest in the Middle East.

Aside from the damage caused by more than a decade of UN sanctions, the list of items that need to be replaced has arguably more than doubled after the Anglo-American war. In one month, coalition aircraft flew more than 30,000 sorties, most of them bombing runs. The tally of major buildings and facilities destroyed by the US and British bombers, cruise missiles and ground forces -- facilities that must be rebuilt to bring the country back to life -- includes airports, major bridges, roads, schools and countless public buildings.
Sandi, the Iraqi-American businessman, estimates that of the $ 8 bn allocated to reconstruction costs in the first year, about $ 3 bn must go to infrastructure repairs. He says another $ 500 mm will go towards other non-oil sectors, such as $ 100 mm for housing and $ 150 mm for irrigation and agriculture -- to say nothing of what many expect will be an extensive de-mining program.

Beyond the day-to-day necessities, less obvious items like televisions and telephones are pressing, and expensive, needs. For example, it could cost about $ 120 mm to set up a mobile phone infrastructure that supports one mobile per 100 people.
(And even mobile phones are proving controversial. Orascom Telecom Chairman and CEO Naguib Sawiris, the man many expect has the best chance of winning the contract to build and run Iraq's mobile phone network, told in April he fully expects Iraq to adopt the GSM standard used in Europe and the Middle East. To do otherwise, he says, "just makes no sense." But the matter is far from cut-and-dried.
According to US media reports, a California senator has tabled a bill that would mandate Iraq's mobile network be rebuilt using the CDMA standard used in the US -- and owned by Qualcomm, a company that (surprise!) is based in California. The US Senate's power to mandate standards for Iraq is questionable at best, but when and if America should leave Iraq, there will be no undoing a standard switch already enforced by ORHA.)

Meanwhile, getting electricity back to pre-1991 levels will cost between $ 8 bn-$ 10 bn. Years of sanctions means the system has had few repairs, leaving it overloaded and widely damaged even before coalition bombs started falling. USAID says it plans to install 550 diesel generators in the next two months. The agency hopes to restore electricity to 75 % of 1991 levels within 18 months, and has already started awarding contracts for those jobs, as well as contracts for repairing 3000 schools and delivering supplies to another 12,500.
Restoring health services has been a bigger challenge given the lack of security and supplies in most of the major cities, but the US still says it wants to build a universal health-care system within 18 months.

The job ahead is gigantic, and since the US is in charge, its development agency is leading the way. USAID has awarded five contracts worth up to $ 755 mm, including the first one for $ 7 mm awarded to IRG to help USAID set up local operations in Iraq. Interestingly, IRG is one of the few companies involved in reconstruction that is not known to have direct ties to the Bush administration, although many of its employees formerly worked at USAID.
North Carolina-based Research Triangle Institute, mandated to help build Iraqi democracy, and Creative Associates International, an education firm, also won USAID contracts early on. Research Triangle's contract is worth at least $ 7.9 mm, and could grow to $ 167.9 mm depending on its needs as it promotes Iraqi participation in the governing process and improves local management skills. Creative Associates was given $ 2 mm to set up a school curriculum, train teachers and buy books ina contract worth almost $ 63 mm.

Aside from increasing suspicions about the US' long-term intentions in Iraq, many of the contracts drew fire for apparent favouritism. Stevedoring Services of America won the $ 4.8 mm contract to assess the port in Umm Qasr and run its daily operations. Umm Qasr is Iraq's only deep-water port, and the US expects it will be the main point of entry for future aid, equipment and other supplies.
One of the largest port builders in the world, with some experience in the Middle East, the company seems like a good choice. But Stevedoring is also a major supporter of Bush's Republican Party, having donated 80 % of its $ 23,825 in campaign contributions between 1999 and 2002 to Republican candidates and $ 1000 to Bush's campaign specifically, according to the Centre for Responsive Politics in Washington.

Also under fire is San Francisco-based construction giant Bechtel Group -- a company saturated with past and present executives who have served in numerous Republican administrations. Bechtel won the largest USAID contract so far, initially valued at $ 34.6 mm, but worth up to $ 680 mm. Bechtel's job is to repair at least half of Iraq's major roadways as well as some 100 bridges and 3000 schools.
In light of the large amount of federal dollars being spent, this contract drew intense criticism when it became known that USAID had asked only six companies for bids on the infrastructure deal, many with White House connections. Complaints grew louder when Bechtel, whose board of directors includes George Bush Sr.'s Secretary of State George Schultz and was once headed by Ronald Reagan's Defence Secretary Caspar Weinberger, won the rich deal.
In Bechtel's defence, it has worked on major construction projects throughout the world, including the Channel Tunnel between France and Britain, the Hoover Dam, Hong Kong's International Airport and a $ 20 bn industrial complex in Saudi Arabia. It's exactly that type of experience USAID was hoping to tap, say officials in Egypt forced to explain the contracts to critical -- and often hostile -- members of the Egyptian press.

But USAID is not the only agency now facing intense public scrutiny. The US Army Corps of Engineers is the other government arm doling out reconstruction work. The Corps of Engineers picked Kellogg, Brown & Root (KBR) to oversee the extinguishing of oil-well fires and assess the damage to Iraqi oil facilities.
The Corps of Engineers did not disclose the terms of the deal, although several media reports had it skyrocketing to $ 7 bn. And while KBR later revised the estimated value of the contract down to $ 600 mm, its award caused shockwaves because the company is a subsidiary of Halliburton -- an oil-services firm run by US Vice President Dick Cheney from 1995 to 2000.
Cheney stepped down from the firm when he became Bush's running mate, but he still draws $ 180,000 a year in deferred compensation.

Repairing and restarting oil facilities are among the most urgent priorities in Iraq, since oil revenues are the mainstay of the economy. Experts estimate that several years of work and about $ 5 bn in investment will be needed to raise Iraqi production from its current output of around 2.5 mm bpd to its pre-1991 level of 3.5 mm bpd.
"Work that needs to be done would include expanding the capacity of some fields that haven't been developed and repairing those that are in decline, such as Kirkuk, which is the largest," said Jim Placke, an oil expert at Cambridge Energy, a Washington-based think tank. That's to say nothing of prospecting for new oil with modern technology, something that hasn't been done in well over a decade. The Defence Department is trying to restart oil production in southern Iraq by the end of April in order to meet domestic demand and avoid a fuel shortage.

The benefits to companies involved in the reconstruction process are wide-ranging. Aside from the large sums involved, the contracts are coveted because they come on a cost-plus basis, meaning the winners are reimbursed for the cost of the job in addition to a fixed fee, which guarantees they will not lose money. Plus, companies with a presence in Iraq now -- especially oil companies -- will benefit greatly once the economy starts growing.
"The most sophisticated firms that come in first and establish goodwill with locals obviously will reap huge benefits down the road," Steven Schooner, George Washington University law professor told last month. "These are going to become brand names in Iraq. That's huge. "

Markets were quick to price this philosophy. When the Army Corps of Engineers announced construction concern Perini had been awarded a stand-by contract worth as much as $ 100 mm, Perini's stock jumped 40 %. Boots & Coots International Well Control's stock doubled on the day it became known that it was going to help Kellogg, Brown & Root extinguish oil fires.
To help investors profit, Minneapolis-based investment firm Leuthold Group has compiled an index of 13 companies that could benefit from reconstruction work, including major oil powerhouses such as Halliburton, Schlumberger and Baker-Hughes, and companies that build bridges or manage reservoirs.
It's no wonder that businesses are looking forward to the reconstruction phase -- something even USAID insiders admit is likely to drag on for more than 12-18 months. "We're talking about getting most of this work done in one year, but I wouldn't be surprised if it took longer," says Toni Christiansen-Wagner, USAID's new director in Egypt.

It is indeed a sensitive topic, and there has been controversy at every step of the way. Many are complaining that the US is carving up Iraq for the benefit of US companies. Emotions are running so high that a rumour -- hardly plausible -- circulated online that McDonald's plans to open in Baghdad on the ruins of a bombed-out mosque.
When it became public in early March that Bechtel was bidding on a reconstruction contract, protesters surrounded its headquarters in San Francisco, carrying miniature coffins to represent dead Iraqis and preventing employees from going to work.
Foreign companies, while accusing the US of profiteering, are also complaining that they are being left out. The European Commission has said it will look into the matter -- and it may well find grounds for unfair trade practices. Political disagreements over the war have left relationships with many countries in tatters, and one US lawmaker has only made things more complicated.

An amendment to the White House's war budget by Congressman Mark Kennedy, a Minnesota Republican, could prevent US reconstruction funds being spent through companies incorporated in France, Germany and Syria. Experts say British companies are likely to reap most of the subcontracts, although so far they have come away empty-handed and are complaining loudly to their government.
"They are already screaming in the Middle East, 'You call us corrupt, look at you giving contracts to American companies and no one else,'" Frances Cook, former American ambassador to Oman, told. Cook is a consultant to Middle Eastern companies and has been lobbying the administration to include Egyptian and Jordanian firms to show appreciation for their cooperation in the war.

Multilateral organizations and non-governmental organizations, including the UN, are also up in arms. With European support, they are asking to lead the effort because they have more experience in post-war reconstruction and in dealing with local populations. But US officials have staunchly refused to yield any control, claiming the UN is not up to the task, although they have allowed the UN to operate under their supervision, and are encouraging involvement from the IMF and World Bank.
Still, the US has made financial contributions to NGOs, giving $ 20 mm to domestic non-profit organizations such as Save the Children, and about $ 20 mm to international organizations including UNICEF and the Word Health Organization.

In addition to complaints from foreign companies, governments and NGOs, the administration has had to deal with hefty criticism at home. The main complaint is that USAID bypassed the usual process of publicly calling for bids, and instead asked only a handful of companies to submit proposals.
Democrats especially are outraged that many of the companies that were secretly asked to bid -- and some of those who ended up winning -- have strong ties to the Republican Party. Democratic members of Congress have asked the General Accounting Office to review the process, and a group of senators from the Republican and Democratic parties is trying to push through a motion that would require the administration to publicly explain the awarding of the contracts.

So American critics are bellowing, Arab companies are demanding a piece of the pie, and Russian, French and other companies with Saddam-era contracts are worried about whether their deals still stand. What's the Bush administration's defence? That it had no choice.
USAID argues that it is customary for governments to award contracts funded by taxpayers to US companies, and that foreign companies will be able to bid for about 50 % of the work through subcontracts. The agency also says it had to bypass the public bidding process because of the magnitude and urgency of the job.
"Given the immediacy [of Iraq's infrastructure problems], we selected firms with the accounting ability to handle US government money, that had the personnel to field teams quickly, that were large enough to handle something of this magnitude, and that did have the security requirements needed," says USAID Egypt's Christiansen-Wagner.

As for the allegation that America plans to exploit Iraqi oil wealth to pay for reconstruction? Not so fast, says Christiansen-Wagner.
"It is US taxpayer dollars, not money from the sale of Iraqi oil, that is funding" reconstruction in the first year, she says. "I acknowledge that there has been quite a bit of controversy about the manner in which the solicitations were handled," adds Carleton Bennett, USAID Egypt's procurement director, "I would like to point out that while there was not full and open competition as we usually practice, there was limited competition. Just as a point of reference, when we exercise the procedures under full and open competition, the process usually takes anywhere between six and nine months to complete. It was primarily for that reason that limited competition was used. I can only imagine that a nine-month wait would not have been acceptable to anyone involved."

Moreover, says Christiansen-Wagner, USAID hardly sidestepped federal regulations by inviting a total of 21 companies to bid on the contracts awarded so far. "USAID awards contracts under the Federal Acquisition Regulation (FAR), a federal-government-wide way of contracting under full and open competition," she says. "When we do limited competition, it is in full compliance with the FAR."
Bennett says that while USAID invokes the limited-competition clause rarely -- neither he nor Christiansen-Wagner could cite a precedent -- "the authority has been part of AID regulations for some time, since I've been working with the agency. We invoke it from time to time depending on the circumstances. It is not correct to say that awards were directed toward certain organizations." Like officials at the US embassy in Cairo, Christiansen-Wagner and Bennett stressed that while USAID Egypt is playing only a minor role in the Iraqi reconstruction process, Egyptian companies are "more than welcome" to bid for subcontract work.

As for USAID's long-term presence in Iraq? Agency officials say there won't be one, a suggestion a number of analysts have said is simply not feasible. According to one USAID official, the agency "will not have a 'mission' in Iraq per se because that would imply a long-term presence. That is not part of the US government's plan. The government has made a commitment to leave Iraq's infrastructure and civil society in better shape than it was before 1990, then leave."
USAID will, however, have a mission director in Iraq -- of a sort. The agency's reconstruction work there will be coordinated by Lewis Lucke, a former USAID director in Jordan and Haiti who is serving as a deputy to interim administrator Garner.

It hardly takes an expert to point out that the fuss over every detail of Iraq's reconstruction is rooted in the nation's oil wealth. Although the US government has so far only tapped its own coffers, the prospects of getting a share of future oil revenues -- to say nothing about the ability to project power in the Middle East from permanent US bases in Iraq -- has many people drooling.
"In Afghanistan, we didn't have the infrastructure, we didn't have the resources, and most everything needed to come from outside," an anonymous Defence Department official told last month. "Whereas Iraq was a prosperous country, and even though the regime has run everything into the ground, we can rejuvenate that country quickly because we've got the oil."

When Rumsfeld was trying to sell the war in early March, he told an audience that reconstruction costs would be covered by seized Iraqi assets, oil revenues under the UN's oil-for-food program and donations from other countries. Getting access to oil revenues may not be that easy. On 27 March, after meeting with British Prime Minister Tony Blair at Camp David, Bush urged the UN to immediately resume the oil-for-food program, which was halted at the onset of the war. But UN members, well aware of the power of Iraq's oil, have balked at the idea of handing over the only bargaining chip still under their control.
"It's a very complicated question. Because sanctions are still in place, the only way oil can go in or out is through the oil-for-food program. Unless the US wants to claim the authority and sell that oil until sanctions are lifted, [the US] can't sell it. That's why Bush called on the UN to lift the sanctions," says Bathsheba Crocker, a former National Security Council official. "There's going to be a fight at the UN because of other countries who don't want control over the oil handed to Tommy Franks. They want to maintain some leverage."

Before the coalition's war, Iraq produced 2.8 mm bpd in return for vital UN-sanctioned imports, such as food and medicine. The long-term potential is immense. Iraq has about 112 bn barrels in reserves, and probably up to 220 bn barrels still undiscovered. Only 15 of the country's 74 known oil fields have been developed. Experts say Iraq could hit its pre-1991 level of 3.5 mm bpd within 18 months, netting more than $ 20 bn a year. Further down the road, Iraq could produce 6 mm bpd, compared with Saudi Arabia's 7.4 mm.
But oil is not everything. Experts estimate that Hussein and his regime members stashed up to $ 20 bn in international bank accounts, and that another $ 5 bn-$ 10 bn is tied up in still-unidentified front companies. Some of these funds were frozen after the Gulf War, and the US is now trying to locate every penny.
The US has asked foreign governments to hand over such assets, but with little success so far, since many would prefer to see the UN in charge of the funds. That is no surprise, since the US has already started spending part of the $ 1.7 bn it seized at home on compensating US citizens and US-based Iraqis for suffering they say they endured under Hussein. For example, about $ 118 mm has been paid out to 179 US hostages who were held as human shields during the 1991 Gulf War.

Then, of course, there is privatisation -- after oil, perhaps the brightest long-term prize for US corporations. Privatisation of Iraq's vast range of state-owned companies and the entry of new foreign direct investment into one of the Arab world's largest, oil-rich consumer markets has more than one player salivating. Sources tell the administration will soon award a contract to study privatisation in Iraq.
Given the vast potential for financial gain, and the Bush administration's conduct so far, it is no surprise that the US has been accused of waging a war for profit. Before the war, American streets were filled withprotesters crying "No War For Oil." Now, they're crowding around the gates of reconstruction companies such as Bechtel instead.
Do they have a case? Many sources interviewed in America, including exiled Iraqis and many of Bush's opponents, say no. "I think President Bush sincerely believes that Iraq was a threat to national security. His argument was you cannot put a price on national security and human life, whatever the cost of war," says Iraqi businessman Sandi. "Economically, the US was the biggest importer of Iraqi oil -- 46 % of Iraq's oil during Saddam's regime. They could have gotten the best deal from Saddam if cheap oil was their real motive," he says.

Doing the math yields a murkier conclusion. The US has spent $ 20 bn on the military operation so far, and expects to spend another $ 20 bn in the next five months. In addition, $ 40 bn will be spent on war-related costs such as foreign aid to Arab allies and beefing up domestic security during the war. In comparison, $ 8 bn in annual reconstruction costs seems like small change.
But consider this: Reconstruction and military expenses: $ 88 bn or more this year. Control of Iraqi oil, the privatisation process and the sudden ability to project power in the Middle East from four permanent military bases in Iraq: Priceless.

Source: Business Today Egypt

Come faeries, take me out of this dull world, for I would ride with you upon the wind and dance upon the mountains like a flame.

- W B Yeats

Forums > Social Discussion > US to take Iraq out of OPEC?