The Corporate-U.S. Takeover of the Iraq Economy: How the Iraq occupation embedded US corporations into the Iraq economy, satisfying a multi-decade design on Iraq’s oil wealth

By Kevin Zeese, Democracy Rising
May 7th, 2006

The roots of the economic takeover of Iraq are long and deep. They became more aggressive after the strongest U.S. ally in the region, the Shah of Iran, was deposed in the 1979. The roots of the quest of dominance of the oil-rich region are found in both the Democratic and Republican Party, but the most aggressive pursuit has been by George W. Bush.

Former President Jimmy Carter wrote in his memoirs that many Americans “deeply resented that the greatest nation on the earth was being jerked around by a few desert states.” And, when he was president he put forward “the Carter Doctrine” in a State of the Union Address in 1980 that acknowledged “the overwhelming dependence of the Western democracies on oil supplies from the Middle East” and promised military force would be used to ensure access to Middle East oil: “Any attempt by an outside force to gain control of the Persian Gulf will be regarded as an assault on the vital interests of the United States of America and . . . will be repelled by any means necessary including the use of force.”

But, according to a book by Antonia Juhasz, “The Bush Agenda,” it was the Reagan, Bush I and Bush II administrations that most aggressively pursued the Iraq oil economy. Her excellent book tells a story that explains the reasons for the invasion and occupation of Iraq. It shows how the Reagan and Bush I administrations began by building a friendly trade relationship that provided money, arms, intelligence, and political protection to Saddam Hussein – despite his brutal record as a despotic dictator. And, how the Clinton years led to ‘regime change’ in Iraq becoming the policy of the United States and naturally following that was the Bush II’s military invasion of the country.

She highlights the web of corporate interests from the oil, oil engineering and military sectors of the U.S. economy that have combined with government to the build-up to the invasion of Iraq. Many of the corporate players – Chevron, Bechtel, Lockheed Martin and Halliburton – have corporate leaders who went into and out of government over the years, influencing the direction of U.S. policy and then ensuring that their corporations profited mightily from the policies they put in place. Juhasz points to Dick Cheney, Donald Rumsfeld, L. Paul Bremer, Scooter Libby, Robert Zoellick, Paul Wolfowitz, Zalamy Khalizad and George Shultz, as key players in the long term quest to takeover of Iraq’s economy.

The Root of the Problem: Peak Oil in the U.S. and Corporate Globalization of Trade

The story of the invasion of Iraq and theft of the Iraqi economy is part of a larger story of multi-national corporations and corporate globalization affecting much of the world. Under the guise of “free trade” economic policies that make multinational corporations more powerful than governments. Laws favoring corporations are put in place: less regulation, less commitment to specific locations, and restrictions on government preventing the shift of economic benefit away from small, local business, workers, consumers and the environment. Globalization of trade claims to benefit by trickling down the profit, but in reality it continues to funnel wealth to the top – making the rich richer, the poor poorer and the middle class class smaller.

In 1970, U.S. domestic oil production hit its peak. The United States began to rely on foreign sources of oil, and went deeper into an oil addiction that continues to this day. It was also the decade where Middle East oil producers began to flex their muscles. OPEC used oil as a weapon in response to the 1973 Arab-Israel War, imposing an embargo on the United States. The embargo ended in March 1974, but the threat was heard.

President Carter fought back, in 1977 his Defense Secretary, Harold Brown, described the insecurity around oil as the most “serious threat to the long-term security of the United States.” In 1978 the second oil shock hit with the Iranian oil embargo, reducing supplies by 5 percent, increasing oil prices by 150 percent causing inflation and interest rates to skyrocket in the U.S. and the debt load of developing countries to rapidly rise. Carter threatened military force to protect access to oil and turned to the World Bank to find more oil – by 1981 the World Bank had 28 oil projects underway.

President Reagan took the World Bank to another level – forcing countries to change their laws so that U.S. corporations would have direct access and control of oil. Reagan increased World Bank oil projects from 1982 to 1984 to more than 55. Reagan also aggressively put forward the trickle down theory – at home and abroad – making the wealthy wealthier would, in theory, trickle down resources to all. But the facts were the opposite. Juhasz points out that in the thirteen years before Reagan the income divide was shrinking – from 1967 to 1980 the poorest in the U.S. increased their share of total income by 6.5 percent. Reagan’s aggressive redistribution of wealth to the wealthiest reversed that trend and from 1980 to 1990 the Census reports that the poorest Americans lost more than 10 percent of the income pie, while the wealthiest gained almost 20 percent.

Reagan and Bush I also dramatically increased trade with Iraq. They knew of Saddam’s human rights atrocities, and that Iraq was on the U.S. terrorism list but they supplied money, arms, and commercial products to Iraq. They even allowed U.S. corporations to provide the ingredients for weapons of mass destruction. Reagan removed Iraq from the list of terrorist nations in March 1982 to open up more trade. There was virtually no trade with Iraq in 1981 but by 1989 annual trade was up to $3.6 billion and had been expected to double in 1990 before Iraq’s invasion of Kuwait. When Saddam refused U.S. efforts to build an oil pipeline, the strategy changed to the removal of Saddam from office. The first effort the Gulf War and the aftermath failed to achieve that goal.

The Blueprint for the Economic Takeover of the Middle East

The initial blueprint for the takeover of Iraq came in 1992 in the final year of the Bush I administration. The 1992 “Defense Planning Guidance” (DPG) describes America’s overall military strategy and represents guidance from the president and secretary of defense. The 1992 DPG was written by Dick Cheney, Paul Wolfowitz, Zalamy Khalizad, Scooter Libby, Eric Edelman and Colin Powell – six men who served Bush I and II, most worked in the Reagan administration as well.

The DPG was written after the success of the 1991 Gulf War, and the failure to remove Saddam Hussein from power – two years after the fall of the Berlin Wall and the emergence of the U.S. as a sole superpower. The document, built on the Carter Doctrine and remained in effect through the Clinton years, states the goal clearly – the objective of the United States in the Middle East is “to remain the predominant outside power in the region and preserve U.S. and Western access to the region’s oil.” The document describes an aggressive, unilateral, preemptive military agenda – that includes ad hoc coalitions of countries – rather than working through organizations like the U.N.

Many in this same group reunited in 1997 to establish the Project for the New American Century. PNAC restated support for the DNG and sought U.S. military dominance in the world. They recognize the importance of economic dominance as a compliment to unrivaled military power. They proposed an annual increase in military spending of $15 to $20 billion. Being able to act preemptively in the Middle East gets special attention noting that “the United States has for decades sought to play a more permanent role in Gulf regional security.” They describe Saddam Hussein as providing an “immediate justification” for a “substantial American force” in the Middle East. In January 1998 PNAC wrote President Clinton urging the removal of Saddam Hussein from power noting that Hussein was a threat to “a significant portion of the world’s supply of oil.”

Another key group was the Committee for the Liberation of Iraq. The group was founded in 2002 by Robert Jackson, a Lockheed Martin executive who wrote the Republican Party foreign policy platform in 2000. He formed the Committee while at Lockheed and advocated aggressively for the overthrow of Saddam Hussein. The Chairman of the Committee was former Secretary of State and Bechtel executive, George Shultz. Shultz wrote a column in The Washington Post in 2002 claiming the US must “ACT NOW. The danger is immediate. Saddam must be removed.” The article argued heavily for an immediate attack because of weapons of mass destruction and Saddam’s ties to terrorism saying: “If there is a rattlesnake in the yard, you don’t wait for it to strike before you take action in self-defense.” Shultz fanned the flames of fear saying the risk is “tens or hundreds of thousands killed by chemical, biological or nuclear attack.” After the occupation Lockheed Martin received more than an $11 billion increase in sales and contracts including $5.6 million for work with the Air Force in Iraq. Bechtel received nearly $3 billion in Iraq reconstruction contracts.

The pro-military dominance advocates worked in other spheres as well. Paul Wolfowitz left the Clinton administration and went to Johns Hopkins School of Advanced International Studies, where he began to advocate for a second Gulf War – this time including the overthrow of Saddam Hussein. Zalmay Khalilzad, the current U.S. ambassador to Iraq, went to the Rand Corporation and founded the Center for Middle Eastern Studies and also served as a paid adviser to Unocal Oil Corporation (purchased by Chevron in 2005) where he openly advocated for a close relationship with the Taliban in order to build a 890 mile natural gas pipeline. In a Washington Post Oped he urged re-engaging the Taliban as “The Taliban does not practice the anti-U.S. Style of fundamentalism practiced by Iran.”

Bush II united military and corporate globalization into what Juhasz calls “one mighty weapon of Empire.” She points out that Bush’s unilateralism became evident before 9/11 with the withdrawal from the Anti-Ballistic Missile Treaty, opposition to the Comprehensive Test Ban Treaty, rejection of the International Criminal Court and the Biological and Toxin Weapons Convention protocols. Instead of a new DPG, Bush issued a National Security Strategy which makes U.S. status as the only superpower a reason to expand U.S. military spending to dissuade others from challenging U.S. dominance. Bush also put forward that America “will not hesitate to act alone, if necessary, to exercise our right of self defense by acting preemptively.”

Embedding U.S. Corporations in the Iraq Economy

After George W. Bush became president, those who had planned and advocated an attack on Iraq to remove Saddam took power. Dick Cheney held meetings under his “Energy Task Force” with corporations including Halliburton, Bechtel and Chevron. A draft of the Task Force’s recommendations came out to the media in April 2001. The first recommendation under Strengthening Global Alliances included a graph of Iraq oil output to the United States in 2000 and said a goal was to “make energy security a priority of our trade and foreign policy.” The second goal was for the U.S. to “support initiatives by [Mid East] suppliers to open up areas of their energy sectors to foreign investment.” In 1998 Chevron’s CEO said: “Iraq possesses huge reserves of oil and gas – reserves I’d love Chevron to have access to.” His dream was about to be realized.

The well-known drum beat for war with Iraq began and after the success of the invasion the economic takeover began. The initial U.S. czar of Iraq, Jay Garner headed the Office of Reconstruction and Humanitarian Assistance. He advocated for putting Iraqis in charge as soon as possible, with elections held quickly. Garner was fired by Rumsfeld on the night he arrived in Iraq – fired, he believes because of these views. He was replaced by neo-con Paul Bremer and the Coalition Provisional Authority.

Bremer was in charge from May 6, 2003 to June 28, 2004. He had complete legislative, executive and judicial authority over Iraq. Bremer had four decades of corporate and government experience, working with Kissinger as managing director of Kissinger and Associates, as well as working in government with George Shultz and Donald Rumsfeld.

Prior to the invasion, Bearing Point received a $250 million contract from US AID to develop a blueprint for the remaking of Iraq’s economy into a ‘free-market’ economy friendly to U.S. corporate interests. Bremer’s job was to implement the Bearing Point plan. Juhasz points out that while there may have been an inadequate military plan, there was in fact a plan for the takeover and remaking of the economy of Iraq.

Bremer had the power to create laws by issuing “binding instructions or directives.” Bremer issued 100 Orders, Juhasz in 2005 interview describes some of the key orders:

“Order No. 39 allows for: (1) privatization of Iraq’s 200 state-owned enterprises; (2) 100% foreign ownership of Iraqi businesses; (3) “national treatment” — which means no preferences for local over foreign businesses; (4) unrestricted, tax-free remittance of all profits and other funds; and (5) 40-year ownership licenses.

“Thus, it forbids Iraqis from receiving preference in the reconstruction while allowing foreign corporations — Halliburton and Bechtel, for example — to buy up Iraqi businesses, do all of the work and send all of their money home. They cannot be required to hire Iraqis or to reinvest their money in the Iraqi economy. They can take out their investments at any time and in any amount.

“Orders No. 57 and No. 77 ensure the implementation of the orders by placing U.S.-appointed auditors and inspector generals in every government ministry, with five-year terms and with sweeping authority over contracts, programs, employees and regulations.

“Order No. 17 grants foreign contractors, including private security firms, full immunity from Iraq’s laws. Even if they, say, kill someone or cause an environmental disaster, the injured party cannot turn to the Iraqi legal system. Rather, the charges must be brought to U.S. courts.

“Order No. 40 allows foreign banks to purchase up to 50% of Iraqi banks.

“Order No. 49 drops the tax rate on corporations from a high of 40% to a flat 15%. The income tax rate is also capped at 15%.

“Order No. 12 (renewed on Feb. 24) suspends “all tariffs, customs duties, import taxes, licensing fees and similar surcharges for goods entering or leaving Iraq.” This led to an immediate and dramatic inflow of cheap foreign consumer products — devastating local producers and sellers who were thoroughly unprepared to meet the challenge of their mammoth global competitors.”

The result of these orders was to create an economic environment more favorable to U.S. corporations than laws in the United States. As a result Iraq corporations, and Iraqi workers have been excluded from the rebuilding of Iraq. And, the Iraq reconstruction has failed to provide adequate electricity, food, sewage treatment and even gasoline – but U.S. corporations have profited handsomely from this failed reconstruction.

Juhasz describes the impact of U.S. policies on the Iraqi economy: “The new economic laws have fundamentally transformed Iraq’s economy, applying some of the most radical, sought-after corporate globalization policies in the world and overturning existing laws on trade, public services, banking, taxes, agriculture, investment, foreign ownership, media, and oil, among others. The new laws lock in sweeping advantages to U.S. corporations including greater U.S. access to, and corporate control of, Iraq’s oil. And the benefits have already begun to flow. Between 2003 and 2004 alone, the value of U.S. imports of Iraqi oil increased by 86 percent and then increased again in the first three quarters of 2005.”

To further embed a U.S. corporate economy in Iraq, the Iraq Constitution contained provisions that approve the Bremer Orders. The new Iraqi Constitution specifically repealed the Transitional Administrative Law, but did no such thing for Bremer’s Orders and therefore they continue to be the law of the land. Thus, U.S. corporations continue their hold on the reconstruction of Iraq, and U.S. contractors continue to have full immunity from prosecution in Iraq. Beyond that, several articles of the Constitution re-enforce the Bremer Orders, e.g. Article 25 requires “modern economic principles that insure the full investment of its resources, diversification of its sources and the encouragement and development of the private sector; Article 26 “guarantees the encouragement of investment in various sectors,” Article 27 allows for the privatization of state property. Juhasz points out that modern economic principles means corporate globalization and the market principles of the Bremer Orders, and private investment means foreign investment.

Further, the Iraq Constitution does nothing to end the military occupation. Early drafts of the Constitution included provisions that forbid Iraq “to be used as a base or corridor for foreign troops” and “to have foreign military bases in Iraq.” These provisions were deleted in the final draft.

The Future: Oil Takeover, US Economic Dominance of the Middle East and the Battle Lines of World War III

The next stage for Iraq is a national oil law that will allow for oil companies to sign contracts with Iraq that gives them access and control over Iraqi oil. Juhasz points out that U.S. oil companies were brought into to advise the Bush administration on Iraq oil policy six months before the invasion. Further, the State Department’s “Future of Iraq Project’s Oil and Energy Group,” which included Ibrahim Bahr al-Ulou,, a U.S. educated oil industry who served as Iraqi Minister of Oil from September 2003 and again beginning in May 2005, agreed that Iraq “should be opened to international oil companies as quickly as possible after the war.”

The method being used for U.S. control of Iraq’s oil is Production Sharing Agreements. PSA’s favor private companies at the expense of exporting governments as the entire exploration, drilling and infrastructure-building process are turned over to private companies in contracts that last twenty-five to forty years. These contracts lock in the laws at the time the contract is signed. Thus contracts signed now would have the Bremer Orders as their law no matter what a future Iraqi government did.

Interim Prime Minister Allawi submitted guidelines for Iraq’s new petroleum law in September 2004. The guidelines put “an end to the centrally planned and state-dominated Iraq economy” and urged the “Iraqi government to disengage from running the oil sector.” Further, he recommended privatization stating the industry “should be exclusively based in the private sector, that domestic wholesale and retail marketing of petroleum products should be gradually transferred to the private sector, and that major refinery expansions or grassroots refineries should be built by the local and foreign private sectors.”

Finally, Allawi called for all undeveloped oil and gas fields to be turned over to private international oil companies. This, at a time when only seventeen of Iraq’s eighty known oil fields have been developed. Article 109 of the Iraq Constitution re-enforces this goal stating that the federal government only administers existing oil and gas fields. The plans for a new Iraq petroleum law were made public at a press conference in Washington, DC by Adel Abdul Mahdi, formerly the Finance Minister, and now a Deputy President of Iraq.

Thus, the goal is about to be realized, control of Iraq’s oil and the Iraqi economy. Iraq will be dominated by U.S. corporations, supported by the U.S. military. Ending the economic occupation of Iraq may be more difficult than ending the military occupation. The embedding of laws favoring foreign investment through the Bremer Orders and the Iraq Constitution will make it difficult to give Iraq back to the Iraqis.

The U.S. is already moving to gain control of the broader Middle East economy. The U.S. is aggressively pushing the U.S.-Middle East Free Trade Area. MEFTA is modeled after NAFTA and seeks to economically tie the region – where 54 percent of the world’s oil reserves exist – to the United States. MEFTA seeks to cover 20 countries in the Middle East and North Africa. MEFTA is being developed through bi-lateral negotiations with each country, leading to a region-wide agreement. The U.S. is using the “us against them” strategy – those that oppose us will be viewed as against us. Part of the negotiation includes Generalized System of Preferences (GSP) which provide for duty free import into the United States. Unique in the Middle East is the trilateral nature of these agreements – the U.S. and another country plus Israel. To get duty free entry to U.S. markets a certain percentage of goods must go through Israel allowing Israel to take a piece of the profit.

Iraq is the first economy to fall. The massive U.S. Embassy in Baghdad shows it will be the base of U.S. operations in the region. Juhasz subtitles her book “Invading the World, One Economy at a Time.” This is consistent with the views of PNAC, the 1992 DPG, and the ‘access of evil’ speech. As John Gibson, the founder of Committee for the Liberation of Iraq and a Lockheed Martin executive, said in 2003 “We hope Iraq will be the first domino and that Libya and Iran will follow. We don’t like being kept out of markets because it gives our competitors an unfair advantage.” PNAC labeled the countries of greatest concern 2000 as Iraq, Iran and North Korea – the future ‘axis of evil’ of George W. Bush. They placed Iran as the second target saying “Over the long-term, Iran may well prove as large a threat to U.S. interests in the Gulf as Iraq has.”

President Bush has declared that we are now in World War III. While this World War is framed in terms of good vs. evil – terrorism against the United States – what it may really be about is U.S.-corporate and military dominance of the world. As Juhasz says – the U.S. taking over one economy at a time.

This is a must read book for those who want to understand how we have gotten where we are in Iraq, and where the next phase of ‘World War III’ will take the U.S.