Leading article: The oil rush

The Independent

""The oil can is mightier than the sword," said the 19th-century US Senator Everett Dirksen. Nowhere does this seem more true than in contemporary Iraq where, despite widespread despair about the war's costs in terms of blood and treasure, US corporations look set to be some of the conflict's few winners. The announcement that the Iraqi government is planning to change its constitution to allow foreign extraction of oil will give Western companies access to the world's third largest oil reserves. Production sharing agreements (PSAs), lasting for up to 30 years, will divert up to 75 per cent of Iraqi oil revenues to Western drilling companies until their initial investment costs have been recouped. The importance of this cannot be overstated for a shattered country still reliant on oil for 95 per cent of its income.

Of course, the Iraqi oil industry, starved through years of sanctions and now under constant insurgent attack, badly needs Western investment. Only a small proportion of Iraq's known oil fields have been developed, and production still languishes below pre-invasion levels. The neo-conservative dream - indulged in by Paul Wolfowitz and Dick Cheney prior to the conflict - that the invasion and reconstruction would be self-financed through a twist of the oil taps, dissipated long ago.

In a country where unemployment has hit 70 per cent, a policy that will quicken the pace of economic reconstruction should be universally welcomed. At face value, the measure is not being imposed by the fiat of a US general: it will be voted on in the Iraqi parliament and, if passed, enacted by a democratically elected government. And objections that foreign companies will steal Iraq's birthright seem faintly anachronistic in the global economy: specialist engineering is an international industry these days, and Iraq's command economy, isolated from the rest of the world, urgently requires liberalisation.

But it doesn't demand the fevered imaginings of a conspiracy theorist to think that this law, struck while the beleaguered Iraqi government is facing opposition from all quarters, protects the interests of oil wealth (which is so well represented in the White House) more than it does the Iraqi people. Production sharing agreements don't apply in most other major Middle Eastern oil producers because they are widely thought to grant greater control to companies than governments. With economies so heavily dependent on oil, it's hard to see how countries can truly be self-governing if they sign away influence over their almost exclusive source of wealth.

Legitimate questions must be asked. How did this decision come to be made? How much pressure was President Nouri al-Maliki placed under to bend to the American corporate interests? Conservative US thinktanks such as the Heritage Foundation have been plotting the wholesale privatisation of the Iraqi oil industry for years. Since 2003, the supposed reconstruction of Iraq by US companies has left a bitter taste with most Iraqis who see a symbiotic relationship between the US military and big business that would make a British district commissioner in imperial Africa blush.

From the immediate aftermath of the invasion, the ill-fated US proconsul, Paul Bremer, denied the Iraqi government the ability to give preference to Iraqis in the reconstruction effort. Instead, US companies were awarded contracts totalling more than $50bn. And they have conspicuously failed to deliver. Despite billions spent, clean water, sanitation and electricity are below pre-war levels. The spectre of Americans scouting the country for oil at the same time as the death toll from the insurgency reaches new heights could shatter whatever residual faith is left among the Iraqis in the intentions of Western policy. Iraqis will reach the natural conclusion that, from the beginning, the Iraq adventure was an attempt to steal imperial spoils.

Before the war, to meet precisely these criticisms, Tony Blair promised that a development fund for Iraq was to be established to hold in trust the proceeds from oil sales under United Nations control. But, like so many of the concessions that the Prime Minister attempted to squeeze out of the President, this got lost somewhere in the Oval Office.

This is not the moment to rehearse the causes of the Iraq war, disputed as they are, but this newspaper has always been sceptical that it was "all about oil". Yet, at a time when the Americans and British are desperate to establish some sort of credit on the ground in Iraq, to make some claim on Iraqi hearts and minds, this arrangement looks terrible. What greater fuel could a conspiracy theorist want than the news of this oilman's bonanza? Was it mere coincidence that the war's most vociferous champions, such as Dick Cheney, were former oilmen? Policymakers would do well to remember that long and lucrative contracts handed to Western oil companies by the Shah of Iran during the 1960s led to a widespread feeling that the country was raped.

The Iranian revolution was the bitter harvest of a previous generation's oil greed in the Middle East. It would be to heap a further tragedy on Iraq if, in a country where the appearance of things can be as important as how they really are, the perception was to grow yet further that it was American greed that took the country to war. The importance of reflecting honourable intentions towards the Iraqi people is all the more important in a week when, in the teeth of a new Democrat-controlled Congress, President Bush is expected to announce a "surge" of 20,000 troops to "secure" Baghdad. After spending the Christmas break reflecting on Iraq policy, the President seems to have chosen what his obstinate character always suggested: to ignore the conventional wisdom and dig the hole in which Iraq policy is mired ever deeper.

After years of repeating his stay-the-course mantra, it was unlikely that, whatever the appalling evidence from Baghdad, George Bush would suffer the ignominy of admitting defeat. With ratings of his handling of the war at an all-time low, this is George Bush's final chance to avoid his presidency being branded as one of the worst in history. Like a gambler who has stacked up losses and hopes that one more lucky throw will rescue him, the President thinks that a modest additional deployment in Baghdad will see him vindicated by what he likes to call the "long march of history".

But, as General Wesley Clark writes today, the situation in Baghdad departed from the well-laid plans of Pentagon planners long ago. There have been attempts to retake Baghdad before by flooding it with troops stationed in the rest of the country - only to see the violence get worse. US troops are not in a position to stem the Sunni-Shia violence, and an overwhelming majority of Iraqis from across the ethnic divide now no longer believe that the troops are helping the situation.

With the death toll of US troops slipping over the 3,000 mark during the Christmas lull, there is a real risk that additional men and materiel in Iraq will merely provide more sitting targets for the insurgents to attack."