Private Empire: ExxonMobil and American Power (31 page)

After the invasion, Michael Makovsky, a member of the Pentagon’s Iraq oil planning team under Feith, chaired weekly telephone conferences with American oil advisers in Baghdad. Late in the spring of 2003, Makovsky asked that inquiries be made at Iraq’s oil ministry about the old pipeline’s status. Was it operational? Could it be repaired or placed into service?

The assignment fell to Gary Vogler, a West Point graduate and former Mobil Oil executive who had entered Baghdad with the first wave of American civilians as part of the oil advisory team led by Phil Carroll. Vogler considered himself to be “politically naive.” In the first weeks after the invasion, he established a strong working relationship with Iraq’s interim oil minister, Thamir Ghadhban, a career ministry engineer who had been jailed briefly by Saddam but who had stayed and survived his reign. One day, Vogler traveled to the oil ministry and found Ghadhban at his desk, juggling telephones.

Vogler asked about the pipeline to Haifa. Ghadhban looked at him icily. “There are a lot of people in my organization, in the ministry, and throughout the country, who feel like the only reason why you guys came into this country is to get oil out to Israel,” he said. “If I go out with a question like that, I’m only going to solidify their viewpoint.”

“Forget I asked you that,” Vogler said. “Don’t follow up on it unless I ask you again.”

The queries from Makovsky, in Washington, continued. Vogler resisted the questions, asking why Makovsky kept making such an issue of a pipeline that had never been discussed in prewar planning. The purpose of the questions seemed vague. “Put in writing what you need and why you need it,” Vogler requested.

In an interview years later, Makovsky said he could not recall discussing the pipeline with Vogler, but he did remember being asked to review the pipeline’s status by superiors at the Pentagon. “The Israelis were at one point interested in this at the beginning of the war,” he recalled. “I was asked by an official to look at this.” He investigated and wrote a brief report. “There were a lot of things I looked into that didn’t go anywhere. I’m not aware of anyone in the U.S. government who was advocating building a line from Iraq to Israel. . . . I never advocated anything like that.” Douglas Feith, too, said the idea surfaced with “lower-level Pentagon officials” and he “never supported the proposal.”
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Makovsky clashed regularly with Vogel; he felt that the former Mobil executive was unreliable. A third American official who participated in the pipeline discussions in 2003, and who respected both Vogler and Makovsky, recalled that Makovsky’s true purpose was to find an export route for Iraqi oil that would bypass Syria and benefit Jordan, not Israel. “Mike’s view is that you can’t have it go to Israel—he would like that, but he realizes you can’t have that,” this official recalled. Still, Makovsky was, in this participant’s estimation, tone deaf. “What does he always refer to it as? ‘The Haifa pipeline.’” Makovsky said later that aiding Jordan and undermining Syria was indeed the reason he was at times animated about the possibility of resurrecting the pipeline. He continued for years afterward to write articles supporting a pipeline route from Iraq to Jordan, arguing that it would create “an opportunity to export oil both to Asia, where demand is growing, and to Europe and the United States.”
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Eventually, unhappily, Ghadhban made the inquiries demanded by his American liaisons. He reported back with evident satisfaction that the pipeline in question barely existed anymore; it had not been maintained for decades and had been pulled apart in places by scavengers. There was nothing, realistically, that could be done for now.

These awkward early exchanges coincided with high-level reviews of how Iraq’s state-owned oil industry should be restructured to attract foreign investment and improve production rates. Philip Carroll, the senior adviser, was a patrician and a deeply experienced peer of Vice President Cheney’s in the oil business. After running Shell’s American division, he had been recruited to turn around troubled Fluor Corporation, a government contractor and Halliburton competitor. At the time of the Iraq invasion, Carroll held a top secret security clearance from his Fluor days. He was a close social friend in Houston of George H. W. and Barbara Bush, the American president’s parents. Carroll had reluctantly accepted a six-month Baghdad assignment at Rumsfeld’s request; he considered it a call to national service that he could not refuse, although it would cost him about a half million dollars in foregone private sector compensation and require him to live in spartan conditions in Iraq’s Green Zone.

Carroll waged a rearguard battle in Baghdad against the Bush administration’s more radical privatization advocates; he made clear that he would resign rather than participate in a precipitous sell-off of Iraq’s oil assets, according to one career intelligence analyst who worked with him at the time. Carroll, too, was a believer in free markets, but he knew the Middle East and he felt that the United States had no choice but to go slowly and defer to Iraqi decision making. Iraq’s nationalism, coupled with the visible trends toward state ownership in the global oil industry, suggested that postwar Iraq should probably reestablish its state-owned oil company, at least as a first step. Carroll’s personal view was that if he were running Iraq—“And believe me, I never want to do that”—he would build up a strong nationalized oil company and then later invite private international oil companies to invest as partners in Iraq’s fields. That “mixed model” would free up Iraq’s national revenue for “crying needs” in education, health care, and other social sectors. “If you bring in Exxon, with a very fat checkbook, they could basically throw money at something and get things done very quickly,” Carroll said. Iraq would probably have to give up some oil ownership in exchange for such investment capital, but it would also gain access to the latest industry technologies and training. In any event, Carroll felt that he should not impose his private opinion on the interim Iraqi administration. He wanted to help Thamir Ghadhban and other key Iraqis “at least begin to be thinking” about their options for reorganizing their country’s oil industry.
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He advocated approaches that might favor private oil companies in the longer run, however. On June 26, Carroll wrote a memo entitled “Future Policy Issues Concerning the Ministry of Oil,” addressed to Paul Bremer. He noted that raising Iraqi production to its full capacity of about 6 million barrels per day might require as much as $30 billion or more in long-term capital investments. This raised the question of “when to invite new upstream discussions with prospective partners” from the oil industry. Carroll wrote that the next twelve months would not be “too early to start talks.” He foresaw “an extended period to exchange concepts and to establish relationships.”

Under the heading “Privatization in the Oil Sector,” he continued, “Needless to say, this will be a very contentious issue within the Ministry, the government, and the population at large.” He argued against a precipitous sale of stock in Iraqi oil enterprises. A trust fund for Iraqis, “along the lines of the Alaskan model,” whereby regular cash royalties were paid to citizens, would be preferable. He also suggested that it “would be in the U.S. interest” to develop an educational program for employees of Iraq’s oil ministry—specifically, “comers” who could be trained in the United States. Such a program “would not only meet the ministry’s needs but [would] begin to build a group of future leaders who would have a taste of U.S. life.”
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Carroll’s memo accurately forecasted the Bush administration’s oil policy in postwar Iraq. The policy was constructed to protect Iraqi decision-making prerogatives but also to account for enduring American interests, including those of U.S.-headquartered oil corporations. As Iraq’s anti-American insurgency intensified after 2004, the Iraqi state’s capacity to manage its own affairs gradually weakened. Iraq’s potential to oversee oil production on its own, which would have been challenging in any circumstance, gradually became all but impossible. International capital and private oil companies would be required to rescue Iraq’s position whenever the internal violence generated by the American invasion calmed. As Tariq Shafiq had observed about the First World War, access by Western companies to Iraq’s oil did not need to be an explicit cause of the Bush administration’s invasion to become an outcome.

D
ouglas Feith had been thinking about global oil security issues since the first term of the Reagan administration, when he worked on energy policy as a young staffer at the National Security Council. He considered himself something of a contrarian on the subject. After the oil shocks and embargoes of the 1970s, it was common in Washington to think of “energy security” as a problem in which newly powerful Arab exporters could wield the “oil weapon” over vulnerable Western importers.

This was the political science model of oil security, as Feith put it. Oil supplies lay scattered around the globe, as on the board of a Risk game, and governments competed for advantage and control. The United States military developed contingent plans to seize oil fields in Saudi Arabia in an emergency, particularly if the Soviet Union moved against them. Hostile governments might squeeze the United States by withholding its oil, as the Saudis and other Arab producers had done over American policy toward Israel. A logical response to this embargo threat was the one taken by President Gerald Ford in late 1975, when he signed into law a bill that authorized, among other things, the construction of the strategic petroleum reserve, where the United States could store volumes of oil equivalent to several months of imports, to be released in the event of an embargo or supply disruption. The S.P.R., as it was known, provided the United States with a countermove against hostile oil producers in any contest of physical access. The reserve’s existence presumably deterred oil-producing enemies from imposing embargoes. If one was imposed anyway, the S.P.R. provided Washington with time to pursue military or other interventions against the aggressor.

Feith concluded that this way of conceptualizing oil security was misguided. He was a young free-market thinker and he noted that neither economists nor oil industry executives saw the global oil market the way political scientists or naval blockade strategists did. In the economists’ view, oil was a commodity just like any other commodity. As was true for cocoa or coffee, there was a single global market for oil. There were gradations of price for different types of oil quality, but fundamentally, oil’s global price went up or down on the basis of worldwide supply and demand. The best way to visualize the market was to think of a global bathtub or pool of oil with spigots pouring into it from many different exporting countries and customers piping out supplies where they required them.
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Traders and speculators set the price of a new barrel of Iraqi or Russian or Chadian crude in Rotterdam’s spot market or on futures exchanges in London, New York, and Chicago. In such a system no single oil producer could disrupt supplies or control prices very effectively for long, Feith believed. A major producer like Saudi Arabia or the O.P.E.C. cartel could attempt to withhold supplies and by doing so prop up prices temporarily, or try to punish a particular importer through a targeted embargo, but the forces of economic gravity in the pooled global market were likely to prevail over time. When global prices rose, as they did during the 1970s, the incentives to invest in new oil production also increased, and so new supply came on line, which in turn reduced global prices again—exactly as occurred during the 1980s, when Feith worked at Reagan’s N.S.C. He noted that the collapse in the price of oil during the 1980s was precisely the opposite of what many political analysts inside the United States government had predicted. President Jimmy Carter’s 1977 National Energy Program presumed that oil would become “very scarce and very expensive in the 1980s.” In 1979, the Central Intelligence Agency forecasted, “The world can no longer count on increases in oil production to meet its energy needs.”
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Why were they wrong? Feith thought he knew the answer: The history of commodities was one of prices going up, supplies increasing, and prices falling back down again. Oil, fundamentally, was no different. The timelines required to bring new supplies on line were longer than, say, the planting of corn crops, but the underlying economic pattern was the same.

One implication of this analysis was that the geographical origins of a particular barrel of oil did not matter very much. Except for the issues of a particular barrel’s quality—that is, the ease with which it could be refined—and transportation costs, global oil traders did not care whether a new barrel poured from a spigot in the Middle East, Latin America, Australia, or Africa. As it happened, half or more of global oil reserves lay in the Middle East, so that region’s political stability and transport lanes would always command attention. However, in an economic sense, the Middle East’s barrels were the same as all others.

Feith’s views were reinforced by what happened in international oil markets after Islamic radicals seized power in Iran in 1979. Carter imposed a boycott on Iranian imports, but Iranian oil just found its way to European and other international traders. Those traders often resold Iranian oil on the spot markets. Other producers who had previously sold to Europeans now sold to American companies. Global supplies and prices proved to be resilient. Companies, not governments, decided where particular batches of oil were shipped for refining, on the basis of price, transport, and technical factors.

Within the Bush administration, by the time of the Iraq invasion, this free-market vision of a single, liquid global oil market had taken hold as a kind of quiet conventional wisdom—it was seen by some within the administration as a sophisticated basis for thinking about American oil security, as opposed to the misguided Risk board model of the 1970s. Rumsfeld and Stephen Hadley, the deputy national security adviser, as well as many of the economists who advised President Bush at the National Security Council and the National Economic Council, all had independently come to similar conclusions as Feith. Their consensus had clear implications for the Bush administration’s energy policy: If oil constituted a unified worldwide market, and if the United States would be an importer in that market for an indefinite time, then it was in the interest of the United States to promote policies—free trade, open markets, low taxes, maximized oil production everywhere—that would fill the global pool with as much new oil as possible, and thus keep global oil prices low, to the benefit of the American economy. The alternative policy—the pursuit of “energy independence” by one means or another—was unnecessary, too expensive, and unrealistic. This was precisely what Lee Raymond believed, and what he had reiterated to Vice President Dick Cheney when they met in Washington soon after Bush took office. Cheney understood and agreed. Besides Cheney, Raymond told his colleagues at ExxonMobil, he had met only one other world leader who truly understood how global liquid oil markets worked, and what this implied for foreign policy: British prime minister Tony Blair. Blair joked that it was good that most politicians did not understand the oil markets because if they did, “they’ll think they can do something about it.”