Iraq: The Quagmire

Iraq occupies a territory known in antiquity as Mesopotamia, the Cradle of Civilization, where humans first lived as permanently settled farming communities. But its recent history has not been all that civilized. And much of it has centered not on crops, but on oil—of which Iraq has a lot.

The country of Iraq is a recent invention. The area had been part of the Ottoman Empire for most of the years from the sixteenth century until the end of World War I.

With the acquiescence of U.S. President Woodrow Wilson, England and France chopped the Ottoman Empire into pieces they labeled Turkey, Syria, Lebanon, Palestine, the Gulf States, and Mesopotamia. The chopping was done with little consideration for the ethnic and religious differences within each piece or how a given group might overlap multiple countries. Notably, the Kurds were (mostly) split among northern Iraq, western Iran, and southern Turkey, and have been trying to coalesce into a country of their own ever since. They remain the largest ethnic group in the world without their own state.

Mesopotamia was administered by the British until they reformed it into the Kingdom of Iraq in 1921. In 1932, the kingdom was given full independence. With its religious and ethnic divisions, the kingdom has had a rocky history, including two Kurdish/Iraqi wars that killed many but settled nothing. In 1958, the monarchy was overthrown by a disgruntled military faction that promptly proclaimed the Republic of Iraq. It was not the kind of republic envisioned by James Madison. Instead, it was an authoritarian regime untethered from the traditional laws and practices that might restrain a monarchy. Most of the time, the office of president was held by whoever controlled the military.

One of them in turn was Saddam Hussein.

Saddam was a leader of the Sunni-dominated Ba'ath Party (fascism with sand dunes) and had played a key role in the 1968 coup that brought the party to power. In 1976, he became vice president and, in that office, stood next to an ailing head of state. Saddam developed a security force loyal to himself through which he could control relations between the government and the military. In the early 1970s, he orchestrated the nationalization of oil and other industries. Through the 1970s, he cemented his authority over the apparatuses of government as oil money helped Iraq's economy grow rapidly. Most of his appointees to positions of power were fellow Sunnis.

In 1979, he assumed the presidency, although he had been the real head of Iraq's government for several years. He ruled until being driven out, a quarter-century later, by the American-led invasion in 2003.

Iraq's Oil History

From 1925 to 1961, all production of oil in Iraq was controlled by the Turkish Petroleum Company (TPC), an organization that before World War I had acquired the rights to all the oil in the Ottoman Empire. TPC had been formed in 1912 by Calouste Gulbenkian, an Armenian entrepreneur who was already a prominent and successful player in the oil industry and who was nicknamed Mr. Five Percent for his practice of reserving 5 percent of everything for himself.

After World War I and the breakup of the Ottoman Empire, the company was renamed the Iraqi Petroleum Company (IPC). Gulbenkian sold half of it to British interests who were active in neighboring Iran and who were willing to fund the exploration and development of Iraqi oil deposits.

In 1927, IPC brought in a game-changing well in the Kirkuk field, in the Kurdish area of northern Iraq. By then, U.S. interests had their foot in the door and IPC was reorganized, with 23.75 percent going to each of the predecessors of today's BP, Royal Dutch Shell, and Total S.A., and to an American consortium of the antecedents of Exxon Mobil and Chevron. The balance went to Mr. Five Percent. Each of the parties agreed not to compete with one another in the Middle East (the Red Line Agreement).

The noncompete agreement led to a strain. The Americans and the British, on the one hand, had other sources of oil production and intended to develop the Iraqi fields at a measured pace. France, on the other hand, had its interest in Iraq and little else. With Iraq on "Slow," France wanted to develop other sources, but the noncompete agreement barred it from doing so on its own in the Mideast.

At the end of World War II, Iraq was decades behind Iran in developing its oil industry. It didn't have even one refinery. Iraqis wanted to exploit their resources, but, as in Iran, nationalist sentiment was growing and with it resentment of foreign control of oil production.

Iraq's military rulers understood the tension between the desire for independence from foreigners and the need for outside expertise. They feared that nationalization would bring Iraq a ruinous buyers' strike of the kind that shut down Iran's economy in 1952 and drove Mosaddegh from power and into prison.

It wasn't until the USSR arrived, with the Soviet-Iraqi agreement of 1969, that the government stood up to IPC and to British and U.S. interests.

The Soviets offered Iraq capital and technical help to build an oil refinery and pipelines to move crude oil and oil products. And that was only the opener. The Russians also offered assistance for hydroelectric plants, mining projects, and nuclear energy.

Moscow wanted more than access to Iraqi oil; involving itself in the country was a Cold War ploy. In easing Iraq's dependence on Western oil revenue and helping the country become more self-sufficient, the USSR would undermine U.S. influence and gain a foothold for itself in the Middle East. The Russians appealed directly to the Shi'ite majority, who were the most fervent nationalists and wanted to get rid of IPC altogether.

Westerners, especially the British and the Americans, had abused their positions over the years. As in Iran, they failed to deliver on promises of grand improvements, such as schools and hospitals. Disgruntled locals, mainly Shi'a, felt the foreigners were simply stealing from them. And there was a second but related target of resentment; whatever oil money stayed in Iraq all seemed to wind up in the pockets of the hated Sunni ruling class.

It was a political stew to Moscow's liking. Envisioning Soviet-friendly Shi'a ultimately taking control of their country, the Kremlin encouraged an assault on IPC.

In 1972, Saddam seized IPC's assets and handed them to the Iraq National Oil Company (INOC, an entity created in 1966 and still in existence). But from the Russians' point of view, the move backfired. Nationalization was seen as a great victory among the Shi'ites. However, Saddam and the Ba'ath Party still ran the military and the government, so the spoils of the nationalization helped keep them in power. The Shi'a got something to celebrate but nothing to spend. The Russians got nothing at all.

With nationalization, an oil industry that had been humming along went into a tailspin. The technical expertise that outsiders had been providing was lost, which was crippling for a not-so-modern country. Foreign investment dried up. In fact, INOC's own rules barred the company from granting concessions to or partnering with foreign corporations. Even service contracts required restrictions that few foreigners would want to live with.

Even more damaging to the oil industry was Saddam's appetite for war. He got involved in three of them, starting with the disastrous conflict with Iran.

The United States supported Saddam in his war against Iran, but after the UN-brokered ceasefire was signed, relations quickly deteriorated.

The First Gulf War came just two years after the end of the war with Iran. It was precipitated by Iraq's invasion of Kuwait.

Saddam beat up Iraq's rich little neighbor for three reasons.

The first was territorial. The Iraq defined by British cartographers in 1922 was virtually landlocked. Kuwait had Persian Gulf frontage that Saddam coveted. He claimed that the country's history as the Ottoman Empire's province of Basra made it rightfully Iraqi territory.

The second was debt. The Iran/Iraq War had left Iraq deeply indebted, primarily to Saudi Arabia and Kuwait. Iraq had been pressing both nations to forgive the debt, but they refused. Thus the invasion was like a hostile corporate takeover of a creditor.

The third was oil economics. Kuwait's oil fields were a tempting prize by themselves. In addition, Kuwait had been hurting Iraq by cheating on its Organization of Petroleum Exporting Countries (OPEC) quotas. The cartel's policy at the time was to limit production to keep the price near $18 per barrel; overproduction by Kuwait (and by the United Arab Emirates [UAE]) had pushed the price as low as $10. That cost Iraq

$7 billion per year in lost revenue, equal to its 1989 balance of payments deficit. Keeping Kuwait's oil in the ground was almost as attractive as stealing it.

The Iraqi government also claimed it was the victim of economic warfare, including slant drilling from Kuwait into Iraq's Rumaila oil field. In the summer of 1990, it threatened military action.

The trigger may have been clumsy communication by the United States. In a late-July meeting, U.S. ambassador April Glaspie told Saddam, "I know you need funds. We understand that, and our opinion is that you should have the opportunity to rebuild your country. But we have no opinion on the Arab-Arab conflicts, like your border disagreement with Kuwait...."

Saddam took this to mean that if he moved against Kuwait, the United States would not intervene. Thus emboldened (and perhaps thinking he might catch a little help from the Russians), on August 2 Saddam ordered the invasion.

Carefully watching events from the sidelines was Saudi Arabia . The country is majority Sunni but includes a sometimes militant Shi'a minority in the oil-rich eastern part of the country.

Saudi-Iraqi relations, motivated by a shared fear of Shi'ite Iran, had been cordial during Iraq's war with Iran. Soon after the war, in 1989, the two governments signed a pact of noninterference and nonaggression. But while they shared interests, they did not share trust. The Saudis were driven to cooperate with Saddam by worries that a Shi'ite revolution in Iraq, should one occur, might spill over into Saudi Arabia. Yet they feared Saddam might see his thinly populated neighbor as so weak that, after he had captured Kuwait, he would try to swallow it as well.

Four days after Saddam's army entered Kuwait and a day after President George H. W. Bush proclaimed that the invasion "would not stand," Secretary of Defense Dick Cheney met with Saudi Arabia's King Fahd.

Each had an agenda. King Fahd feared that Saddam would push into his own country. The Americans, wanting to push Saddam out of Kuwait, needed a staging area, and Saudi Arabia was the most convenient choice: convenience for the United States, protection for the Saudis. But they had to hurry. The Iraqis were less than 300 miles from capturing the airfields and ports that American forces would need.

The mutual benefit was clear, but it was a touchy business nevertheless. The United States was asking permission to send hundreds of thousands of infidel troops into Islam's most holy land. This was not something to be taken for granted, even given Saudi Arabia's precarious position.

King Fahd needed only a couple of hours of persuasion, if in fact he needed to be persuaded at all. Permission was granted.

Attempts to talk Saddam out of Kuwait achieved nothing. President Bush recruited three dozen countries to join in the action, although the United States was providing three-quarters of the troops. (The Saudis, with some contribution from Kuwait and other Arab states, would wind up footing about 60 percent of the Gulf War's out-of-pocket costs.) The UN Security Council authorized "all means necessary" to eject Iraq from Kuwait. In mid-January, Congress gave the president the green light to invade.

Aerial bombardment of Iraq began on January 17. On February 24, U.S. troops entered Kuwait. A hundred hours later, it was over. In April, a Security Council resolution defined the terms of a ceasefire. Iraq agreed to recognize Kuwait's sovereignty, dispose of all nuclear, biological, and chemical weapons, cease production of such weapons, and allow weapons inspections to ensure compliance.

In the immediate aftermath of the Gulf War, Shi'a in the south of Iraq took their own fight to Saddam, encouraged by what they believed was a pledge of support from the United States. In the north, the Kurds, who had also been told they'd get American help, saw the moment as a golden opportunity to break away, and they too rose up. But the United States, expecting a coup from within Saddam's inner circle, did nothing to support either rebellion.

The coup didn't happen, nor did American military assistance to the north or south. Saddam crushed both uprisings.

The Gulf War didn't end in kiss and make up. Following the ceasefire, U.S. and British aircraft enforced a no-fly zone over Iraq. The Iraqis struggled to frustrate the weapons inspections. Hostilities resumed briefly in 1998, after which Iraq refused to admit weapons inspectors at all (until inspections restarted in 2002). In addition, Iraqi forces regularly exchanged fire with U.S. and British aircraft in the no-fly zone the two allies had imposed.

Shirking the conditions of the ceasefire kept Saddam at odds with the United States and culminated in the outbreak of another conflict, now generally just called the Iraq War, 12 years later.

There is no shortage of theories as to why the Bush administration in March 2003 decided to go to war against Saddam a second time: for violations of the ceasefire agreement; because Saddam was developing nuclear weapons; in retaliation for the assassination attempt on the younger Bush's father; because Israel wanted it; to promote the spread of democracy; to finish the job begun during the First Gulf War; for humanitarian reasons (i.e., to bring regime change to a people oppressed by a truly savage ruler); and of course—most commonly held by opponents of the invasion who toted No Blood for Oil signs—that the United States was merely making a grab for Iraq's petroleum at the behest of Big Oil.

There may be a little bit of truth in most or all of these theories. However, a hidden and probably very important cause is seldom mentioned.

It wasn't the oil per se, although bringing it under control was a nice side benefit. It was maintaining control of the currency in which all oil was being traded.

Until November 2000, no OPEC country had dared to violate the U.S. dollar pricing rule for oil. And while the U.S. dollar was still the world's reserve currency, that position was being compromised by a shrinkage in the United States' share of the world economy and by a deepening resentment over U.S. pushiness in global economic and political matters. While international trade without the dollar wasn't entirely practical, for many people around the world it was becoming an agreeable prospect.

It was the United States itself, ironically, that cracked the door open. To blunt criticism that the U.S.-led embargo of Iraqi oil was injuring innocent Iraqis, the Clinton administration agreed to the Oil for Food program, under which Iraq would be allowed to sell oil for cash that would be available exclusively to buy food, medicine, and other basic needs.

In late 2000, France, Germany, and a few other EU members joined with Saddam in defying the petrodollar process: They bought the oil, and Iraq bought the food, for euros, not dollars. Over the next six months, several other countries hinted at interest in non-U.S.-dollar oil trading, including Russia, Indonesia, and Venezuela. At about the same time, Iran was exploring its own exit from the petrodollar system.

In March 2003, American forces invaded Iraq. Barely two months later, the new Iraqi government announced that oil would once again be sold for dollars only.

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