How Russia And China Got Those Iraqi Oil Fields

There's been much scratching of heads over how U.S. oil companies managed to win exactly 0% of the Iraqi field contracts recently up for bid. The contracts, based in Iraq's oil-heavy south, are extremely lucrative. The great American liberators were beat out primarily by China and Russia for the contracts. How did we lose the bids? Quite simply, we mistook the Iraqi oil fields as Iraqi. If we wanted them, we should have talked to Iran instead. The southern Iraqi oil fields, after all, belong to Tehran. From Robert Baer's 2008 book on Iran, The Devil We Know:

The city of Basra offers Iraq's only maritime access and its main oil export route. A half-million barrels of oil a day pass through Basra, heading to offshore oil terminals in the Gulf. Iraq's Shia-dominated south produced 1.9 million barrels a day, accounting for the bulk of the country's production. The south also possesses 71 percent of Iraq's proven oil reserves, and accounts for 95 percent of Iraq's government revenues. Basra is the beating heart of Iraq's economy.

Yet Basra and its surrounding area are not really part of Iraq anymore. Quietly, without firing a single shot, the Iranians have effectively annexed the entire south, fully one-third of Iraq. In Basra today, the preferred currency is the Iranian rial. The Iraqi police, the military, and at least one of its intelligence services answers not to Baghdad, but to the Iranian-backed political parties, SCIRI, Da'wa, and other Shia groups under Tehran's control. But it's not just the police; the same Iranian proxies run the universities, the hospitals, and the social welfare organizations. They exert more control over daily life in Basra than the central government does -- and clearly more than Britain or the United States.

Iran supplies Basra with refined fuel and nearly every other raw commodity that keeps the city alive. An Iranian-allied faction is in charge of Iraq's oil exports, siphoning off hundreds of thousands of barrels a day to support the faction and its sponsors in Iran. Iran takes a direct role in reviewing lists of foreign companies bidding on Iraq's mega oil fields in the south. In other words, you can't do business in southern Iraq without a green light from Tehran. And no one even bothers to hide Iran's role.

Iraq's Shia oil minister was quoted in the Iranian press as saying there was an agreement between Iran and Iraq to jointly invest in Iraq's oil fields.

Baer goes on with pages of evidence. For example, Iraqi Da'wa spent 25 years in "exile" in Iran until, in January 2005, it hopped across the border and promptly won 38 of Basra's 41 Parliamentary seats. As it turns out, Iran even recently occupied one of Iraq's fields. Tellingly, they did it with "10 to 11 Iranian troops," which doesn't exactly imply massive resistance from the Iraqis.

But this would be little more than speculation if nor for the fact that Russia and China walked away with the rights to the Iraqi fields. In September, revelations of Iran's accelerated nuclear program brought international rebuke, but the United Nations Security Council has failed to act on the massive multilateral sanctions required to really deter Iran. Why has it failed? Both China and Russia, which have veto power on the Security Council, have consistently signaled that they would block sanctions.

It was less than three months ago that Russia and China defended Iran from sanctions that could have crippled its economy. Now they've both beat out the world's largest private oil companies to secure wildly lucrative deals in the south of Iraq, a region where Iran appears to exercise strict economic and political influence. Unless we can find a way to get along with Iran, we can probably expect for the free market economies of the West to have less and less access to the world's most important resource.