The answer lies in oil

The answer lies in oil

The multinationals negotiating deals to exploit oilfields in Iran and Iraq should reflect on gloomy historical precedents

In the Iraq story, it seems, the answer lies in the oil. This week we hear via the New York Times that up to five of the big oil multinationals are set to win contracts to exploit the largest and most lucrative oilfields in Iraq – including the new discoveries lying to the west of Basra and Amara.

The companies, the heirs of the famous seven sisters of the big cartels that ran large chunks of the oil business in the last century, are Exxon, Chevron, Total, Royal Dutch Shell and BP. They will benefit from the new Iraqi oil law, which has taken years to produce, and they will be granted the licences to lift the oil on a non-compete basis.

Iraq has the second- or third-largest known commercially viable oil reserves in the world – it jostles in ranking with Iran. The difficulty for both countries is that they have antiquated or non-existent infrastructure for refining and distribution. In 1991, according to a UK defence intelligence source, Iraq had only twelve "cracking" or full refining plants – and the situation can hardly be any better today.

Iran has roughly half as many again, some 18 in all, which leaves it peculiarly vulnerable. According to my source (who is now an international businessman), however, "the place is awash with crude, but they have to ship a lot of it out to get it refined, and then buy it back again". The former commander believed that the coalition force could have "knocked out" Saddam Hussein's war effort in 36 hours at the opening of Operation Desert Storm by "dropping the cracking plants". Similarly, he said, the force could do the same for Iran if it came to confrontation over nuclear weapons" proliferation: hit the oil plants rather than target elusive nuclear sites. The consequence, however, would be a tsunami in the global economy.

The non-compete bids by the big five oil companies – which appear to have been successful against some 40 others, including some from the China – raise the question of whether this was the big prize after all. Bush and Cheney have an oil background and, along with Henry Kissinger, have been obsessed with America's energy security. Even so, it is astonishing if they believed they could just grab chunks of Middle East oil generation in the old-fashioned mercantilist spirit of colonial empires of two centuries back.

The deal is odd, not only because of the non-compete bids, but also because it is very short. The companies are bidding initially for two-year contracts. Off the record, some of their officials have stressed that they do not want to appear to be war profiteers and that the aim is "to help the Iraqi oil industry to get back on its feet".

Somebody who is setting himself up to be a winner is Nuri al-Maliki, the Iraqi prime minister. The day the New York Times broke the story, Maliki sent thousands of Iraqi Army troops backed by American forces to "restore order" to Amara, the capital of the oil-rich Maysan province. The aim is to clear the streets of the militias, particularly those of the Mahdi army of Moqtada al-Sadr.

Last March, Iraqi army forces were ordered into Basra to clean out the Sadr militias in the week that negotiations for new Iraqi oil contracts opened in Amman, Jordan. The British got a lot of stick for letting Moqtada's mob get out of hand in the southern cities like Amara and Basra, and the Americans had to take over command of the fight there.

Twice in four months, a big move on oil has been complemented by a crackdown against the Sadrists. Maliki has decided to hitch his fortune to the muscle of the al-Hakim Clan and their Badr organisation, the militia of their Supreme Islamic Iraqi Council political party. This alliance sees itself as the leading power in the Shia community. Together, they want to exclude Moqtada from gaining power in the imminent provincial elections, above all in Basra and Maysan, which are on top of the richest oilfields in the country.

Nuri al-Maliki now sees the need to distance himself from the Americans. For three months his government has been negotiating a security pact with the Americans to give a legal basis to their presence, once the current UN security council resolution according them occupying status expires at the end of the year. The Americans have pitched high in their demands – at least 58 bases (they had asked initially for 200) and immunity from prosecution for all American personnel, military and civil including security contractors. Washington also asked to be able to arrest, charge and extradite any Iraqi citizens they suspect of evil intent.

When al-Maliki took the sketch of a deal to Tehran for approval, he got the big thumbs down. President Ahmadinejad said no, but more to the point the Supreme Guide of the Iranian Islamic Republic Grand Ayatollah Ali Khamenei said he did not welcome any enduring American presence in Iraq. This was supported by two other major Shia clerics. Grand Ayatollah Ali al-Sistani, the senior Shia cleric in Iraq, said he did not want to see America involved institutionally in a future Iraq. The more radical Ayatollah Kazim al-Haeriri declared a fatwa against an open-ended licence for American forces in Iraq. Formerly close to Moqtada al-Sadr, they had recently become estranged. Once more reconciled, they are in harness, with Haeriri acknowledged as Moqtada's spiritual mentor.

Despite the setbacks, the Americans say negotiations continue; progress is slow, but will get there in the end, US diplomats in Baghdad are whispering.

However, deals to station foreign troops in Iran and Iraq have a very bad precedent in recent history. The status of forces agreement (Sofa) with the Shah of Iran made him even more dictatorial, according to American diplomats even then, and all but inevitably led to his overthrow and the theocratic regime of the Ayatollahs. In 1955, the British negotiated a different form of Sofa to allow the RAF bases in Iraq under the Baghdad Pact. Within two years, the royal family, who were British clients, were thrown out in an extremely bloody coup which opened the road to the Ba'ath party and, eventually, Saddam's tyranny.

One must hope that Barack Obama and John McCain have got their short histories of Iran and Iraq on the bedside table.
http://www.guardian.co.uk/commentisfree/2008/jun/20/iraq.oil