Plundering Iraq’s Oil Wealth

To the Corrupt Belong the Spoils

Jalal Talabani, Masoud Barzani, Iraq, Kurdish, oil

To understand the plundering of Iraq’s oil wealth, we have to look first at the original sin of the invasion itself. Blueprints showing how oil could help rebuild the country were drawn up post-Desert Storm in the 1990s and resurrected in 2003. It never happened.

Journalist Erin Banco explains why, as she talks to Jeff Schechtman in this week’s WhoWhatWhy podcast. She laments the dashed hopes of the Kurds and the Iraqi people. She explains the hapless actions of the Bush and Obama administrations, the real role of big oil and the damage done by tribal rivalries in Iraq.

She tells the story of the Talibani and the Barzani families, and how they got rich — along with oil company executives, government staffers and political parties. Meanwhile, the Iraqi people, who knew very little about what was happening, ended up with virtually nothing.

Banco says that for years Iraqi journalists have been killed in Iraq for even trying to report this story. Today, with entirely different players, the corruption and mismanagement goes on, and may be the keys to the Iraq elections scheduled for May.

Erin Banco is the author of Pipe Dreams: The Plundering of Iraq’s Oil Wealth (Columbia Global Reports, January 2018).


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Jeff Schechtman: Welcome to Radio WhoWhatWhy. I’m Jeff Schechtman. On the day after he was sworn in, Donald Trump went to CIA headquarters and said that the US should have kept the Iraqi oil after the drawdown from the Iraq war. He suggested even that maybe we’ll have another chance. He conjured up that old expression, “to the victor belong the spoils.” In fact, the real victor was supposed to be the Iraqi people. The government claimed to have 45 billion barrels of oil. The sustaining oil revenue was, in the words of the US, to make the lives of the Iraqi people immeasurably better. But none of this happened. Instead a network of corruption, deceit, greed, and mismanagement plundered the oil.
How did this happen, who got rich, how much oil was really there, and what were the real and unintended consequences of that story? That’s the story that my guest, investigative journalist Erin Banco, tells. Erin Banco is investigative reporter at The Star-Ledger and NJ.com. Her work focuses on the intersection of money and government. She’s a former fellow with The New York Times, and the Middle East correspondent for International Business Times. She’s covered armed conflict and human rights violations in the Middle East for years, and it is my pleasure to welcome Erin Banco here to talk about Pipe Dreams: The Plundering of Iraqi’s Oil Wealth. Erin, thanks for joining us on Radio WhoWhatWhy.
Erin Banco: Thanks for having me.
Jeff Schechtman: In order to understand what happened with the oil, and the corruption, and the greed, and so much of what you write about in Pipe Dreams, do we need to go back to the beginning and really understand the original sin here; and the things that moved us into Iraq in the first place?
Erin Banco: Yeah, I think that’s part of it, definitely. I think what’s important to understand when looking at this story, is to understand that it sort of develops in two separate parts of Iraq. It develops in Iraqi Kurdistan, which is ruled by the Kurdish Regional Government. And it unfolds in a similar way in Iraq Proper, which is overseen and run by the central government in Baghdad. Both have similar stories of corruption and plundering of oil wealth. I think what we need to do is start, like you said, from the very beginning and look at how the United States primarily used its leverage with the Kurdish Regional Government after 2003, when we went into Iraq. That’s where it all really begins.
Jeff Schechtman: When we went in, in 2003, was there, at least as you report the story, was there a plan, an idea of how this oil — even the way it was argued at the time — might be used for the betterment of the Iraqi people after the war?
Erin Banco: Yes. A foundation had been laid out in the 1990s. The Kurdish Regional Government had developed a system of contracts, a blueprint for how they were to develop their oil sector in that region of Iraq. It had been untapped in a big way, and it had not been developed. So in the 1990s they really set up that blueprint, but it didn’t really get going until 2003. Our goal, US and other western countries’ goal, was to go into this part of Iraq. The idea was that the Kurdish Regional Government, and the government in Baghdad would use the riches from oil sales to rebuild their country after the toppling of Saddam, to build up their economy. That was the goal, and that really hasn’t happened.
Jeff Schechtman: Was there a plan how this was supposed to work? Or was it something that was just “we’ll see once we do it”?
Erin Banco: There was a plan. The Kurdish Regional Government was advised by people in the Bush administration about how it would work. Executives from oil companies would come into the region with staffers from the Bush administration to meet with the Kurdish Regional Government to lay out how this would happen. What ended up happening, is that the Kurdish regional Government ended up handing out contracts to western oil companies, such as BP and eventually Exxon.
The idea was that these international oil companies would come in and make a lot of money for themselves, but it would also be given back to the local economy. The idea was that, that oil wealth would then flow back into reconstruction projects, building schools, hospitals; which would then employ the local people. What ended up happening though, was that the region developed into a region that’s been defined now as the classic resource curse, where the money from oil sales has not really flowed back to the individual person, and to the KRG, so the local people are suffering.
Jeff Schechtman: Why didn’t it? What started to happen early on, in terms of the mismanagement and the corruption that prevented this from all happening?
Erin Banco: I think the corruption really started when the Kurdish Regional Government began to gain momentum in the sense that it started to take on real powerful allies, such as the United States, such as the UK. They really felt that their bid for independence from Baghdad was a real possibility for them. As more international oil companies started coming into the region and exploring, and putting more money into the region, the Kurdish Regional Government really felt they had a fighting chance. With that came a lot of power and greed. That region of Iraq is historically based on political rivalries, it’s a clan-based society. You have two powerful families vying for power, and as you vie for power, you vie for control over the money, and the money really was all in the oil sector. That was the foundation for which the corruption really built itself up from.
As things developed, those two warring political factions did everything they could to get control of that money, and then feed it back into their political parties. A lot of it ended up into the pockets of individuals who were leaders of those parties. That’s really how it unwinded.
Jeff Schechtman: A lot of kickbacks went on, which was also a source of the money. Talk a little bit about that.
Erin Banco: Sure. When you talk to people who do business in the middle east, particularly Iraq, they often say, well, kickbacks are just part of the game. This is just the way things work there. You have to provide gifts in order to get what you want, but it’s really not that way. I think Iraq is a highly unregulated … their oil sector is highly unregulated, so a lot of things went on between the cracks that no one knew about, or knew about and kept quiet. One particular kickback that I’m thinking of, is one that I outline in the book, where a prominent middle eastern oil and natural gas company sends 12 armored vehicles to the Ministry of Natural Resources in the Kurdish Regional Government, to staffers there one week before their contract is signed.
I was able to get ahold of those records that detailed that shipment and lay out that kickback. There were lots of incidences like that that happened, as international oil companies tried to get those contracts. Those kickbacks were kickbacks right into the pockets, or into the hands of those in control of the oil in the Kurdish Regional Government.
Jeff Schechtman: One of the other things you point out, is that there was less oil than people originally anticipated. Talk about that.
Erin Banco: Sure. Again, I think it’s important to distinguish between the northern part of Iraq in Iraqi Kurdistan, and then in Iraq Proper. In the northern part of Iraq, in Iraqi Kurdistan there had been seismic studies done. People had been studying this land for decades, since the ‘60s. But no one had really explored beneath the sand, beneath the land. I think there was an over-estimation of how much was really under there, so it wasn’t until international oil companies started exploring that they realized that the amount of oil that had first been put out, number wise, as to what was underneath the ground wasn’t really accurate.
So Iraqi Kurdistan’s oil only makes up a small portion of Iraq’s overall oil. The reasons why international oil companies wanted to get into that part of Iraq during the Iraq war was because it was untapped. It was anyone’s game, anyone could get in there as long as they made the right connections with the Kurdish Regional Government. A lot of international oil companies have had disappointing results, and have actually pulled out of that region because they weren’t able to make a profit.
Jeff Schechtman: Talk a little bit about the multinationals, and how they read the situation in terms of the warring families, in terms of the political equation there, and how they played into that.
Erin Banco: I think there was a lack of education on the part of the multinational oil companies about the Kurdish Regional Government. For a long time, many of them had only dealt with the central government in Baghdad. Things aren’t straight forward there either, but at least there was one ministry of oil you went to, and you dealt with a couple of people in that ministry. Things were a little bit more standard, in terms of how you got your permits and your contracts. But in the Kurdish Regional Government, things were a little hazy. There wasn’t a clear road map right away to how to get a permit or a contract to explore in that region. So a lot of companies went in blind and expected that things would go smoothly for them, but what they found was that the two warring parties in that region created a lot of problems for them.
It was very unclear who to negotiate with. It wasn’t clear who you were dealing with at any one given time. There were a lot of things going on behind the scenes in the political realm in Iraqi Kurdistan that they didn’t learn about until later. It wasn’t until really 2005, 2006, that the Ministry of Natural Resources in Iraqi Kurdistan hired a man named Ashti Hawrami, who was and now is the leader of the Ministry of Natural Resources. He sort of handles everything there, but even with his leadership there is still rivalry in the political system, and still people trying to influence contracts behind closed doors. I think what they found, and they learned very quickly, was that gaining a contract in that region was extremely difficult, A. And B, even if you did gain a contract in that region, the terms of that contract were not going to be easy to negotiate.
Jeff Schechtman: Was this a successful endeavor for these big oil companies, for Exxon and the rest of them?
Erin Banco: I think it’s different for every international oil company. The contract terms change from company to company. You have standard terms in the contracts, but the royalties and the payments often shift slightly. I think it depends on how much capital an international oil company has coming into the region, how much money they have to begin with. It depends on their resources.
I think for a lot of companies, it was not a fruitful endeavor. I think for the smaller exploration and production companies, it was a big loss for them. They found out that the political system was too hard to navigate, there wasn’t enough oil underneath the ground to make a profit, difficult exploration results. So we’ve seen since the late 1990s until now, a lot of companies pull out of the region; those who can’t handle operating on debt. For Exxon, Exxon was different. Exxon, I think it was a good move for them in the short term because they were able to hold influence in Iraqi Kurdistan, and to negotiate a really good deal. Now, they’ve all but pulled out of the region, and are just operating in Iraq proper. So I think it differs from company to company. But I think for the larger international oil companies, it was a fine move. I think for the smaller ones who, as I said, can’t operate on debt, it was very difficult for them.
Jeff Schechtman: Who got rich in all of this?
Erin Banco: Definitely not the people of Iraqi Kurdistan. Iraqi Kurdistan locals have suffered tremendously. The people who really benefited from this oil sector system are the political parties, those who lead the political parties. The Barzani family, the Talibani family, and those in between, those who work in the Ministry of Natural Resources, Ashdi Hawrami. Then I think there were certain executives of international oil companies that also made a great deal. Belski Stone Petroleum did well, the executives of that company I think benefited from existing in the region. I think for the most part, most of the wealth flowed to staffers, government members in Iraqi Kurdistan, and the political parties. Like I said, the Barzani family, the Talibani family, the Kurdish Democratic Party, which is known as the KDP, and also the PUK political system did well.
Jeff Schechtman: What, if anything, did the Iraqi public in Kurdistan, what did they know about what was going on? What did they sense, and how did they react to it?
Erin Banco: Truth is very hard to come by in Iraq, especially in Iraqi Kurdistan. They are known, the government in Iraqi Kurdistan, the Kurdish Regional Government is known for their lack of transparency. So in terms of the innuendos, and the minutia of what went on behind closed doors, in terms of oil in Iraqi Kurdistan, there was not much that the people knew about. I think what they saw was international companies coming in, promising to rebuild, promising wealth, and I think that gave them a lot of hope. I think that they were very hopeful that their country would improve, especially their economy, with all the wealth coming into the country.
I think a lot of them are now bitter and cynical about western interventionism, about the promises made for bettering their economy. I think now that there’s still a lot that people don’t know and don’t understand, I think even reporters have a hard time getting to the truth about the oil sector in Iraqi Kurdistan. It wasn’t until I really got my hands on documents from regulatory enforcement officers who had been studying this for decades, that I really began to understand how much hadn’t been put out there and how much was hidden. I think that there’s still a lot people just don’t understand, and I think that’s what’s frustrating them.
Jeff Schechtman: What did the US government know about this? What was their role, if any, in all of this?
Erin Banco: The US government knew about the corruption in Iraqi Kurdistan. There are cables that have been published on WikiLeaks and elsewhere that outline the corruption in Iraqi Kurdistan within the Kurdish Regional Government. But that chaos played to the US’s advantage. They saw the chaos as a benefit. They thought within that political chaos they could strike better deals, especially strike better deals with international oil companies. They thought, hey if we can have US companies come into this region and sign contracts, and get good contracts out of this government, then that’s great for us. So there wasn’t a real push to improve transparency or to try to address corruption head on in the early days of the Iraq war because it worked to our advantage. I think that even now, even today years later, the corruption issue has still not been addressed by the US head on. It is now being addressed by local politicians in the Kurdish Regional Government, but overall the US has had little to say about it.
Jeff Schechtman: How is it being addressed today, even locally?
Erin Banco: So locally right now, transparency and corruption are huge talking points, especially in the lead up to the elections in May. A lot of political leaders are using it as a platform. They are coming out and asking for the main political parties, the leaders of those parties, to talk more about what went on behind the scenes in the oil sector. Right now the Kurdish Regional Government has an auditing firm in the region, Deloitte and Ernst & Young, creating reports about where all the oil money went. The problem with that audit though, is that it only goes back so far. It only goes back four or five years. What really needs to be done, is we need to understand where the money went starting in 1990. There needs to be a full audit done starting then up until now. Opposition parties to the KDP and PUK are calling on those two main political parties to open up the books and show the people what happened to the money. I think that it’s going to be a big issue leading up to the elections in May.
Jeff Schechtman: Is it your sense that we’ll ever find out? Or that the Iraqi people will ever find out what really happened to the money?
Erin Banco: I try to address what happened to the money in the book. As I say in the introduction, this is just a sliver of what could be told on this subject. I think we know that there is a system of corruption that has benefited the parties, the PUK and the KDP, and the leaders of those political parties. We know about the kickbacks, but there is a chunk of money that we still don’t know about. I think unless there’s an audit conducted that goes all the way back into the 1990s, and is fully transparent and independent, we won’t really ever know what happened. I think that’s a really big issue for Iraq moving forward. I think there are a lot of unanswered questions that people have, that the people living in Iraqi Kurdistan still have these questions; and I don’t think that they’ll ever feel comfortable with their political system unless some of these questions are answered.
Jeff Schechtman: What about the broader geopolitical implications of all of this as it relates to Iraq in general, to the stability of the government in Iraq, et cetera?
Erin Banco: I think geo-politically, moving forward from here on out, there are a lot of things that need to be addressed in Iraq before the country stabilizes. There’s a lot of arguments and tension between Erbil, the capital of Iraqi Kurdistan, and the central government in Baghdad. It’s all over oil right now. So the central government and Erbil are fighting over who has access to oil revenues, who has control of what oil revenues. The Kurdish Regional Government really is at a loss, their economy is in a tailspin, they have no leverage. Baghdad right now has all the leverage. Until those two parties come to an agreement about ways in which to split oil revenue, and who controls that oil revenue, and who controls the oil fields even, I don’t think that Iraq will be stable until that happens.
I think they’re … it is a very unstable political atmosphere right now, and hopefully things will even out in the run up to the elections, but I don’t see them coming to a compromise any time soon. This is the major issue for Iraq right now, and the US has tried to stay out of it in a way. They’ve tried to give messages of, let’s keep everything calm, let’s keep everything peaceful. But they haven’t really, at least publicly, said anything influential one way or another.
The other thing to consider here is that the Kurdish Regional Government held a referendum in the fall; in September, October for … they voted for independence and that bid for independence was shut down. So I think there are a lot of angry people in the Kurdish Regional Government right now, and in Iraqi Kurdistan that are bitter about that, so that’s another issue that needs to be resolved. What happened with that referendum, why didn’t it go through, why wasn’t it upheld? Again, those are two big issues, oil and independence, that need to really be tackled before we can see any sort of stability in the country.
Jeff Schechtman: What is the role, if any, of the multinational oil companies, now? Are they just sitting back and waiting? Where are they in all of this today?
Erin Banco: The multinational oil companies in Iraq, especially in Iraqi Kurdistan, don’t really have a big role right now. A lot of them are still waiting for payments from the government. They’re hoping that once things get resolved between Erbil and Baghdad, that payments will continue to flow regularly and in full. So their role right now is really just a waiting game.
Jeff Schechtman: What is your sense of what will happen with these upcoming elections in May?
Erin Banco: I think we don’t really know what’s going to happen in May. Like I said, there are still a lot of outstanding issues that need to be resolved before those elections go ahead. I think that it’s tough to predict what’s going to happen in May before we even have an understanding of how these negotiations between Erbil and Baghdad are going to come to an end. I think it’s really too early to tell. Like I said, the main issue right now is getting Erbil and Baghdad to that negotiating table and getting that compromise sealed. That needs to be the first focus, and I think the elections are so far off in everyone’s mind right now because there’s so much that needs to be done before that.
Jeff Schechtman: How big is the pot of money that we’re talking about? How much is involved here? Do we have a sense of that?
Erin Banco: Yeah. When we’re looking at Iraqi Kurdistan and the oil sector there, we’re talking about hundreds of billions of dollars. There are some reports about how much has been lost to fraud and mismanagement in Iraq as a whole, and they vary. They vary from 20 million to a hundred billion, so there’s really no accurate depiction of how much has been lost to fraud and mismanagement in Iraq as a whole. I will say that from the documents that I’ve obtained, that it’s in the billions. Billions of dollars have been lost to corruption in Iraqi Kurdistan specifically. I didn’t look at Iraq as a whole, but I focused very much so on the Kurdish Regional Government.
Jeff Schechtman: How much of this is being reported in Iraq? How much is filtering down to the people there?
Erin Banco: There’s quite a bit of reporting on oil in Iraq itself. Most of the reporting focuses on who will have access to oil revenues. There’s very little reporting on corruption in the oil sector. It’s very difficult for reporters there to do that story because there’s a lot of intimidation, freedom of the press is very low there. People have been killed in this country for trying to report this story, so I think that’s a big problem. Also, a lot of the media companies in Iraqi Kurdistan are owned by people in the political spectrum. While reporters in these companies try to do their best to get to the truth, they’re often limited by who their bosses are.
Jeff Schechtman: Finally, is there anything that the US could do, should do, to help the situation there?
Erin Banco: It’s really tough to say what the US role is right now. I think that they’re trying to keep the peace between Erbil and Baghdad. They have historically aligned publicly with Baghdad, and left the Kurds out to dry a bit, especially when it comes to their bid for independence. Behind the scenes they’ve been very supportive of the oil sector, but publicly and politically have not been so supportive. I think right now the plan for the US is to try to sit back as much as possible and let Erbil and Baghdad try to figure it out. But I think that their influence will become even more important as elections edge closer.
Jeff Schechtman: Has policy changed with the current administration, and the current secretary of state who comes out of this world of big oil?
Erin Banco: Honestly, our current State Department is very … our current State Department has not really had a vested interest in Iraq as I thought it would have with Rex Tillerson as a leader. We’ve seen very few discussions between the State Department and Iraq, at least publicly. I had thought that given Rex Tillerson’s position, the former CEO of Exxon, and his position in the State Department, I had thought that there would be more action between the State Department and the US and Iraq, specifically in Iraqi Kurdistan. But we’ve seen those conversations have been very few and far between.
The US has taken a back seat to the conversations that are ongoing between Erbil and Baghdad, and it’s hard to understand what the State Department is actually doing at this point to help the situation. Part of it is that the state department is understaffed, wildly understaffed. And the staff members that are there, aren’t necessarily versed on the issues, and I think that’s the major problem.
Jeff Schechtman: Are there any other global players in the region right now?
Erin Banco: Yes, definitely. I think when you look at what international companies exist in the region, and in the country as a whole, you have other players, you have … Iran is a huge player right now, they’re trying to tap into the oil market in Iraqi Kurdistan. That’s their main push right now, and their interaction with the Kurdish government has been about oil. I think the UK has a vested interest in the region, given their companies that exist there. Then you also have China and Russia, who are big players in the oil sector in Iraqi Kurdistan. Russia’s Rosneft has signed a huge deal over the past year with Iraqi Kurdistan, and with the Kurdish Regional Government, and I think we’re now seeing Russia emerge as a major player in the oil sector in the region, which we didn’t really see before. Exxon, the US, and the UK was really dominant in the late 1990s, and during the first years of the Iraq war, but now Russia has really taken over.
Jeff Schechtman: When you say taken over, how big a role do you see them continuing to play?
Erin Banco: I think Russia, we don’t really know about Russia’s relationship with the Kurdish Regional Government. We don’t really know about the details of Russia’s relationship with the Kurdish Regional Government yet. That contract was signed just about eight or nine months ago, so there’s still a lot we don’t understand about that contract, and the nuances of it, and how it works. They’ve offered upfront payments to the Kurdish Regional Government, we don’t really know the exact nature of those payments and how they’ll be paid out, but there’s a lot of money that exists within the contract that we know. We know historically that the more money is involved in your contract, the more influence that you have with the Kurdish Regional Government.
Jeff Schechtman: So it’s safe to say that an awful lot of the corruption is still going on today, maybe with different players.
Erin Banco: It is safe to say the corruption still exists today in the oil sector in Iraqi Kurdistan. There are different players now, but the same system is still being used by the Ministry of Natural Resources in Iraqi Kurdistan. And that’s because some of the main players that created that blueprint, that created that system are still leading. Ashi Hawrami for one, his staffers. There are a lot of side deals still going on that are taking place and are playing out in London right now. I think we’ll begin to see some of this play out in the courts over the next five to ten years.
Jeff Schechtman: Erin Banco, her book is Pipe Dreams: The Plundering of Iraqi’s Oil Wealth. Erin, I thank you so much for spending time with us.
Erin Banco: Thanks so much for having me.
Jeff Schechtman: Thank you. And thank you for listening and for joining us here on Radio WhoWhatWhy. I hope you join us next week for another Radio WhoWhatWhy podcast, I’m Jeff Schechtman. If you like this podcast, please feel free to share and help others find it by rating and reviewing it on iTunes. You can also support this podcast and all the work we do by going to WhoWhatWhy.org/donate.

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Related front page panorama photo credit: Adapted by WhoWhatWhy from oil facility (Bureau of Land Management / Flickr), Iraqi flag (Iraqi government / Wikimedia), Kurdish flag (Unknown / Wikimedia), and Pipe Dream (Columbia Global Reports).

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3 responses to “Plundering Iraq’s Oil Wealth”

  1. mikey says:

    pipe dreams is a decent book and much needed; i commend the author ms banco for wrting this book. for anyone interested in how it actually happened under bremer Antonia Juhasz book The Bush Agenda: Invading the World One Economy at a Time is a good read also.

    this interview is about us and chinese oil companies stealing iraq’s oil in the wake of the war; form 2014

    http://antoniajuhasz.net/interview/iraq-war-oil/ 30 min runtime

  2. HobeSoundJay says:

    Excellent interview.

  3. Jim Fowler says:

    Poor to zero journalism here. Might as well have been a tweet with this much in depth detail.