The plundering of Iraq’s oil wealth

‘Pipe Dreams: The Plundering of Iraq’s Oil Wealth’ by Erin Banco (Columbia Global Reports, 144 pages, $15)

Iraq sits on top of the world’s fifth largest oil reserves. When the U.S. invaded in 2003, the Bush administration promised that Iraq’s rich oil reserves would be crucial in rebuilding and democratizing the country. Reality has turned out differently. The idea that the invasion was motivated by oil is widely held inside and outside Iraq. Thirst for oil resources was no doubt a major motivating factor behind the rush to war, but what exactly has happened to the country’s oil wealth since the U.S. invasion is not widely known.

“Pipe Dreams” by American reporter Erin Banco is a punchy book focusing on the plundering of oil wealth in the semi-autonomous Kurdistan Regional Government (KRG) in Iraq’s resource-rich north. At just over 100 pages the book cannot give a comprehensive account of all the dirty deals and squalid corruption that has gone on. But it is enough to make you want a shower after reading.

Estimates suggest that oil in Iraq has produced more than $700 billion in revenues since 2003, with oil accounting for about 80 percent of all the country’s funding. The lion’s share of this wealth has been siphoned off in shady backroom deals, nowhere more so than in Iraqi Kurdistan. Banco describes the KRG as a classic example of the “resource curse” in which money from oil flows but little of it reaches ordinary people: “Oil is found, pumped, shipped and sold (and sometimes stolen). Regimes, politicians, ministers and companies come and go. And yet the average person benefits marginally or not at all.”

“Pipe Dreams” is based on court documents and interviews with sources who have investigated energy companies, U.S., U.K. and Iraqi government officials, and the middlemen between them. In Iraqi Kurdistan the most successful foreign firms have been smaller companies focused almost exclusively on the KRG: Norway’s DNO, the U.K.’s Gulf Keystone Petroleum, and Turkey’s Genel Energy. But there have been plenty of opportunities for enterprising individuals looking to benefit from generous terms offered by the Erbil authorities.

The KRG has long been praised as a shining example contrasting with the instability elsewhere in the country. It has indeed been relatively free of terror attacks and insurgencies. But the combination of bumper oil reserves and the tribal and familial character of politics in the region has encouraged eye-watering corruption. “Politics, business and family are inseparable,” writes Banco. “Two rival families, the Barzanis and the Talabanis, rule the two main political parties and call most of the shots. If oil hasn’t proved a blessing to the people of Kurdistan, it’s certainly been extremely lucrative for the Barzanis and Talabanis, their friends and their business associates.”

Oil companies have been happy to play along, paying kickbacks to unscrupulous officials and middle men in the form of consultation fees and contract renegotiations. Banco refers to an avalanche of “wheelers and dealers” aiming to cash in on a gold rush-like “oil bonanza” after the invasion of Iraq. She voices outrage at “just how eager American oil companies were, and what lengths some adventurers went to, to try to cash in on the chaos that ensued when the Kurdish government flung its doors open to Western wildcatters.” At one point the book describes the procession of senior U.S. officials passing through a revolving (or revolting) door from public office to lucrative posts in energy corporations active in Iraq. Former U.S. Secretaries of State Rex Tillerson and Condoleezza Rice, former National Security Advisor Stephen Hadley, former Ambassador to Iraq Ryan Crocker, and former top ambassadorial advisor Ali Khedery have all in recent years been on the books at ExxonMobil.

Turkey has also been keen to get in on the action. In 2012, Ankara and Erbil began negotiations on the construction of one new gas and two new oil pipelines from Kurdistan to Turkey, bypassing Baghdad. The deal also gave Turkey a future stake in Kurdish oil blocks. The first shipments of Kurdistan crude flowed into Turkish refineries in Ceyhan in the first quarter of 2014, with Ankara taking 5 percent of the total amount from 550,000 barrels per day of crude pumped along the line through transport and custom duties. Payments were deposited in an escrow account opened by the Kurdish government in Turkey’s state-run Halkbank. This arrangement helped the KRG boost its autonomy from Baghdad and helped pave the way for Barzani’s decision to hold a referendum on Kurdish independence from Iraq in September 2017. Ironically, that vote was fiercely opposed by Ankara.

Banco paints a vivid picture of everyday dysfunction in the KRG. Despite such natural resource wealth, state salaries are often not paid for months, ATM services are intermittent, and local restaurants often have to operate an IOU system. Public finances are in such a parlous state that the Turkish Treasury extended loans to pay KRG public officials’ salaries for months back in 2016 (driving another wedge between Ankara and Baghdad).

One thing Banco does not touch on is the fact that in Iraq as a whole it is not actually U.S. oil companies that have benefited most since 2003. Ironically, perhaps the biggest beneficiaries have been Chinese state-run oil giants. The situation is different in the KRG, but it is worth pointing out that China has become Iraq’s top trading partner thanks to the oil trade since 2003. 

Still, “Pipe Dreams” is a deeply reported and depressing account of an all-to-predictable state of affairs, with corporations and rapacious officials taking advantage of an institutionally weak and unstable country surrounded by war. Many characters in the book emerge with financial credit to their name, but few emerge with any moral credit.

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