Contest still on for the big Iraqi prize

Your mission, should you wish to accept it, is to destroy Opec.

You will be assisted in this by huge amounts of Iraqi oil and a few neo-conservative elements in US Government agencies.

Sounds like an outlandish plot of a new movie starring Tom Cruise?

Not if you believe a recent investigative report by the BBC's Newsnight.

This saga came to light through interviews with oil analysts and executives who were involved in the negotiations.

Reason seems to have prevailed and the Machiavellian plot failed. But even if you do not buy the whole story, there is a grain of truth in it.

In this case, it is true that you cannot burn oil without making smoke, so to speak.

Two years after the US-led invasion of Iraq, the country is still without a permanent government, its crude oil production is below pre-war levels and its energy infrastructure under constant attack by insurgents as political parties view for control of its oil resources.

While the avowed aim of US President George W. Bush was to end the tyranny of Saddam Hussain's regime and strike a blow against terrorism, the BBC report suggested neo-conservatives within the Bush Administration plotted to take over Iraq's huge oil reserves and try to destroy Opec by flooding markets with cheap Iraqi oil.

According to the BBC report which aired on March 17, the plan was shot down by a group of oil company executives and US State Department officials, who opposed the privatisation of Iraq's state-owned energy assets.

But continued turmoil in Iraq and the political vacuum that followed January 30 elections, has had the opposite effect with persistent fears of a disruption to Iraqi oil flows helping to push crude oil prices to new records.

We are now hearing that there is no way Iraq is going to raise its production before 2006, assuming there is a return to normality soon.

The Iraqi Oil Ministry had targeted production of 2.5 million barrels per day by mid-2005 but insurgent attacks and ongoing instability since the end of the US-led war in May 2003 have hampered reconstruction work and prevented the ministry from achieving its target. Attacks on the Iraqi pipeline network are now so common that they even go unreported.

The BBC's Newsnight quoted Iraqi oil industry analyst Faleh Aljibury as saying that the insurgency was fuelled by the plan to privatise Iraqi oil resources. He, and others, said the US Administration's plan to take over Iraqi oil began before the September 11, 2001, attacks, which sparked a policy battle between neo-conservatives and multinational oil companies.

The industry-favoured plan was pushed aside by a secret plan, drafted just before the invasion in 2003, which called for the sell-off of all of Iraq's oilfields, the BBC report said. The new scheme was crafted by neo-conservatives intent on using Iraq's oil to destroy Opec through massive increases in production above Opec quotas, it said.

The latest plan, obtained by Newsnight from the State Department, was drafted with the help of US oil consultants. Insiders told Newsnight planning began "within weeks" of Bush taking office in 2001, long before the 9/11 attacks. And Aljibury said he took part in secret meetings in California, Washington and the Middle East.

Aljibury, once Ronald Reagan's "back channel" to Saddam, claimed that plans to sell off Iraq's oil fuelled the insurgency and attacks on US and British forces because they were read as proof that the country's resources were being taken over by what he called a bunch of wealthy billionaires.

But efforts to privatise the sector were blocked by industry officials working with the former US-led Coalition Provisional Authority (CPA). Philip Carroll, the former CEO of Shell Oil US, who took control of Iraq's oil production for the CPA a month after the invasion, stalled the sell-off scheme.

I have always argued that this war was not purely about oil but the fact that Iraq has an abundance of it clearly played a big part in the decision to get rid of Saddam Hussain and install a friendly, democratic government. This has yet to materialise as the Shiites, Kurds and Sunni Muslims vie for a slice of that very pie.

The Kurds want the oil ministry for themselves, arguing that it is not one of the so-called sovereign ministries like interior, foreign and finance that are deemed bigger political prizes. I am not so sure I buy that. If it were not such a big deal, there would not be so much argument though that is not the only sticking point.

The Iraq story is no longer making daily headlines but it is still simmering and the big prize is still being contested.

The other day while driving around some out of town guests, I ran out of petrol. We laughed at the time about the irony of running out of gas in the UAE, a key Opec producer. Now that Iraqi oil that was supposed to flood markets and bring down oil prices would have come in handy.

The writer is Middle East editor of Platts, energy information division of the McGraw-Hill Group. The opinions expressed in this column are those of the author and do not necessarily reflect those of Platts.