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THE ROVING EYE
China, Russia and the Iraqi
oil game
By Pepe Escobar
Eleven percent of the world´s reserves (second
in the world after Saudi Arabia); 112 billion barrels of
proven reserves; and at least 220 billion barrels of
probable reserves. As Iraq is universally acknowledged
to be the new promised land of oil, the name of the game
in the industry is PSA.
PSA stands for
"production share agreement": Iran and Kuwait, for
instance, don't approve PSAs, they flatly refuse to
share sovereignty over their natural wealth. Iraq is
another matter entirely.
Because of the UN
sanctions, and with its oil infrastructure in tatters,
recent agreements approved by Saddam Hussein, with
French conglomerate TotalFinaElf, for instance, had to
be PSAs. But anyway, these are only agreements;
TotalFinaElf boss Thierry Desmarest said not long ago
that no contract had been formally signed yet.
The war of positioning for a possible
post-Saddam Iraqi environment is getting more ruthless
by the minute. American oil conglomerates are openly
courting representatives of the Iraqi National Congress
(INC), the umbrella opposition. The darling of Exxon
Mobil and Chevron Texaco is Ahmed Chalabi, US vice
President Dick Cheney's pal and major contender for the
title of Iraq's number one opposition figure. Chalabi,
the INC leader, has already stressed on the record that
he favors the creation of a "US-led consortium to
develop Iraqi oil fields. American companies will have a
big shot at Iraqi oil."
To widespread doubts
about how a pro-American post-Saddam government would
respect contracts signed with non-American oil giants,
the INC has reassured all players - mostly Russian and
European - that the new post-Saddam administration will
honor all its PSAs.
The Future of Iraq Group, a
State Department task force, officially is not talking
about oil - which sounds like a joke. And there's also
no official confirmation that oil has been a key issue
in the current hardcore Security Council negotiations
between the US and Britain, on one side, and France,
Russia and China on the other. But it is obviously not
by historical accident that oil companies from these
five permanent Security Council members are all
positioning themselves for the post-Saddam environment.
People like former CIA supremo James Woolsey are
not even disguising Washington's plan to turn Iraq into
an American protectorate with an Arab Hamid Karzai al-la
Afghanistan eager to open the oil taps for American oil
giants. Woolsey had been openly saying that if France
and Russia contributed to "regime change", their oil
companies would be able to "work together" with the new
regime and with American companies. Otherwise, they
would be left contemplating passing cargoes in the Gulf.
Iraqi oil is so attractive to anyone most of all
because it's cheap. Industry sources in the Gulf and
Singapore confirm the production cost of a barrel of oil
in the Caspian sea is around US$8. The same thing in
Iraq costs only 70 cents. So the new oil frontier in
Central Asia for the moment is little more than a
mirage. The same sources confirm that Iraq is currently
producing around 1.5 million barrels a day. But its
production capacity is supposedly between 3 million and
3.5 million: this is what Iraq produced when it was an
oil giant, in 1979, before the Iran-Iraq war. Even
without an American attack, two years and a lot of
investment would be necessary to get back to this
figure. And to double oil production, it would take five
to six years, and extra billions of dollars.
Not
only the Americans, but also Royal Dutch Shell is back
in the Iraqi game - after a charm offensive in 1998.
British Petroleum (BP) is also lobbying - it was thrown
out of Iraq in the early 1960s. To cover the growth of
world consumption in the next few years, everybody has
to look for new sources. ExxonMobil and Chevron Texaco,
for instance, prospect mainly in America. BP works
basically in the Gulf of Mexico, Alaska and the North
Sea. Royal Dutch Shell is exposed to Africa - Nigeria
and Angola - a continent considered "unstable".
Russia is playing a very clever game. Moscow
wants to be a very big player in the oil industry - and
is betting that one day the US will badly need Russian
oil. Some in Moscow dream of Russia as a major supplier
for the US instead of Saudi Arabia. But others, more
realistically, know that Russia can be an extremely
trustworthy supplier to Western Europe.
Russia
is capable of producing more oil than Saudi Arabia. But
its capacity to produce more is also more limited.
Extraction and transport of Siberian oil to America can
be extremely costly. That's one of the key reasons why
Russia definitely does not want low world oil prices: it
would render exploitation of Siberian oil much less
appealing. With high oil prices, Russia has the best of
both worlds: it develops its position as a big oil
player and it pays most of its bills.
China has
been a major oil importer since 1993; the third-biggest
oil consumer in the world, behind the US and Japan. In
the 1990s, its oil consumption rose 6 percent while its
domestic production decreased 2 percent. In 2001,
Chinese imports were one-third (65 million tons) of the
total (200 million tons) consumed.
Reserves in
northern China are practically extinct. New oil fields
in Xinjiang are very hard to exploit. Two-thirds of
China's oil imports are from the Middle East: the main
suppliers are Iran, Saudi Arabia, Oman and Yemen. In
2010, they could be responsible for 80 percent of
China's needs. No wonder Beijing is so worried.
Iraq contributes only 0.6 percent of Chinese oil
imports - but its strategic importance is increasingly
vital. China wants an immediate end to the UN embargo
and sanctions. In 1997, China National Petroleum
Corporation (CNPC), along with China North Industries
Corporation (Norinco), signed an agreement with Iraq for
a 22-year-long exploitation of half the Al-Ahdab field.
The Chinese were supposed to invest $1.3 billion. In
1998, CNPC kept negotiating for an agreement regarding
the Halfayah field. But in the end - because of the
sanctions - the Chinese were only able to conduct
feasibility studies.
China has been playing an
extremely active role behind closed doors in the current
negotiations on the text of the new Security Council
resolution on Iraq and arms inspections. The dispute
only apparently is between a US-led and a French-led
text. UN sources confirm the Chinese align with the
French position - even though President George W Bush
has said that he had a "deal" after he met Chinese
President Jiang Zemin in Texas at the weekend. China is
positively against an American attack on Iraq: it fears
subsequent sky-high oil prices or even the interruption
of supplies.
China is also setting up its own
strategic oil reserve. Reserves for the moment would
only last for a few days. US reserves are good for three
months. Until 2010, the Chinese want to be in the same
position. The heart of the matter for China is to be
less dependent on Middle East oil. Middle East oil
travels through the Malacca Straits - controlled de
facto by the US. Chinese oil companies have been
increasingly active in Kazakhstan. But now, with the
American presence in Afghanistan, it's for the Chinese
to make the next move: how to combat encirclement by
America from the Eastern and Western fronts.
Security Council members China, Russia and
France will only follow Washington's plans for regime
change if they are absolutely sure of a level playing
field in a post-Saddam Iraqi oil industry. Meanwhile, a
doomsday scenario is deeply bothering Bush-Cheney and
the American oil army: attack against Iraq. Middle East
in flames. $60 a barrel of oil. Game over.
But
hopes are high on a dream scenario. Saddam is out in no
time. Negligible "collateral damage". Iraq starts
pumping oceans of oil. The Organization of Petroleum
Exporting Countries is knocked out. $10 a barrel of oil.
Victory.
This explains why Washington is going
all the way - with or without UN resolution, weapons
inspectors, whatever. To get to the oil, you need a
vassal state. Ergo, Saddam's days are numbered.
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