Thanks To 3 Senators, China Entrenched In Iraqi Oil For 20 Years

by Steve Schippert

This story might slip right past you. It’s understandable, considering most Americans have no idea of the context or how it happened that the state-owned China National Offshore Oil Corporation (CNOOC) is now set for 20 years in Iraq, thanks to a deal just inked between the Iraqi government and Communist China. The Iraqis originally selected America’s Exxon-Mobil. I’ll wager you probably didn’t know that. You’ll want to read on. But brace yourself.

Obama 2008 McCaskill

It’s the classic American political tale of self-loathing crafted by the usual suspects. With its government firm and its security at its post-surge best, the Iraqi government needed to quickly bring its oilfields online. It desperately needed the revenues. The summer of 2008 saw oil prices above $100 per barrel and Americans were paying $4 per gallon at the pump.

The best in the business – the best in the world – is Exxon-Mobil. And the government of Iraq turned to America’s Exxon-Mobil to bring undeveloped and underdeveloped fields online to rejuvenate its own revenue sources and ween itself and its people off of American aid.

But three American Senators would have none of it. Senators John Kerry (D-MA), Chuck Schumer (D-NY) and Claire McCaskill (D-MO) sent a public letter to the Bush administration’s Secretary of State, Condoleezza Rice, imploring her to derail the Iraqi deal. (See: ‘In China We Trust’: Senators Closed Door to US Oil Investment In Iraq.) As the Senate troika stated, “It is our fear that this action by the Iraqi government could further deepen political tensions in Iraq and put our service members in even great danger.”

You see, these three American Senators insisted that Iraq shall have no revenues until it passed an oil revenue sharing law that met their distant standards. Or at least, Iraq should have certainly had no additional revenue. Their letter was dismissed out of hand in Washington. But in Iraq, the desired consequences of the letter took hold. The Iraqi government became spooked as the reportage of the letter turned, as one would expect, into wrangling and infighting by those seeking to leverage it to their advantage in the hotly contested revenue sharing process.

And there was “Big Oil” political gamesmanship afoot amid the 2008 presidential elections. As Fred Kagan noted at the time in The Weekly Standard, Claire McCaskill made no real bones about it. “It doesn’t take a rocket scientist to connect these dots–big oil is running Washington and now they’re running Baghdad. There is no reason under the sun not to halt these agreements until we get revenue sharing in place,” McCaskill said. Claire McCaskill knows a thing or two about not being a rocket scientist.

But there were at least two “reasons under the sun” not to halt Iraq’s deal with its preferred American operator. The first “reason under the sun” was the Iraqi government itself, which did not include McCaskill or Kerry or Schumer as part of the “we” who were working on the internal Iraqi revenue sharing agreement. The second “reason under the sun” was China, which would be quite happy to exclude the American senators from their share of the oil and revenue a deal would happily generate.

Remember, Iraq was desperate for income; and oil is, was and will be for some time it’s primary resource. There was no time – nor a need – to wait for a final agreement before beginning to rebuild its oil industry. From the Iraqi perspective, despite the myopic gaming of American politicians, there was no reason under the relentless Iraqi sun not to sign a deal – immediately – with some other willing, unconfined partner.

So what did Iraq do? It governed itself where it could do so without the meddling of the Kerry-Schumer-McCaskill Troika. If these American Senators wanted to make a big stink about its selection of Exxon because it was an American firm, Iraq would turn elsewhere. And who stepped up? China and it’s China National Offshore Oil Corporation (CNOOC). Name ring a bell? That’s because CNOOC is the Chinese state owned arm that tried to buy America’s Unocal. And Marathon. And Hess.

China told Iraq essentially, “We’ll do it, we’ll do it now, and we’ll do it without griping about what you do with your share of the revenues.” Deal. And who could blame the Iraqis?

And that, from 2008, is how we got here in 2010. In an era where the nations of the world are competing ferociously for resources, the usual suspects lead the American retreat. And that one simple letter from three dangerous senators weakened America’s energy and economic security and strengthened China’s by equal measure for twenty years and probably many more.

China, you see, is now “in” in Iraq. China’s “in” in a lot of places, taking advantage of American weakness borne of an American self-imposed taboo status of oil and the vilification of the American oil industry itself.

In March, Andy Olbermueller explained how China, via CNOOC, is “(Not-So) Secretly Buying Up World’s Oil Reserves.” Olbermueller prefaces his piece as “a brief three-part history and economics primer.” The second part stands, however, as a warfare primer as executed by the Chinese today.

Countries don’t colonize anymore. Today, if the British Empire needs tea, tobacco or beaver pelts, it buys them for cash rather than sending the Royal Navy. If the French need rubber, ivory or timber, they import them rather than functionally enslaving the Congo.

And if Red China needs oil, it doesn’t send Chairman Mao’s army (Proud motto: Every man a private), it sends a state-owned company.

That company is CNOOC (NYSE: CEO). And it is on the march.

Recently, CNOOC — China National Offshore Oil Company — sealed a ten-figure deal to acquire a third of the massive Tullow find in Uganda, a region thought to contain several billion barrels of oil. CNOOC is also developing a 2.5 billion-barrel field in Iraq. And late last year CNOOC inked a deal with Venezuela to gear up production in a field in the eastern part of that country.

Now, after several British firms say they’ve found oil in an area north of the Falkland Islands in the South Atlantic, CNOOC has spent $3.1 billion to buy a stake in nearby Argentina, Bolivia and Chile.

“Unrestricted Warfare” was more than just a passing thought published by two Chinese colonels in the Peoples Liberation Army. It was a strategic response to the American dominance of the Gulf War that has been adopted as grand strategy.

China is the most aggressive energy pursuer on the planet. And they apologize for nothing. They recognize the competition afoot and the limitations of resources. And from where America retreats in the competition from resources, the Chinese happily fill the void. China is bold and, with a new deal with Cuba to drill in the Gulf of Mexico, very close to our own shores.

If there are concerns with the safety, operation and oversight of American and British rigs in the Gulf of Mexico, what level of environmental comfort is to be drawn when the newest rigs drilling there are stamped “Made in China”?

With all of that in mind, be sure to thank Senators Kerry, Schumer, and McCaskill for weakening American economic and energy security while strengthening China’s for the next several decades. For them, the withdrawal from Iraq was about much more than troop levels.


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Posted May 19th 2010 at 11:24 am in Congress, Defense, Economics | 742 Comments