Behind the war on Iraq: research unit for political economy

Between 1961 and 1968, IPC increased production in Iraq by only a fraction of the increase achieved in the docile regimes of Iran, Kuwait, and Saudi Arabia by the same oil giants who owned IPC. Since the size of IPC's payments to the Iraqi government depended on the size of its oil output, and since the government's revenues depended heavily on these payments, the oil giants' tactic caused Iraq great financial stringency, and prevented it from undertaking developmental projects. According to a secret U.S. government report, the IPC actually drilled wells to the wrong depth and covered others with bulldozers in order to reduce productive capacity. The prolonged deadlock had extracted a great price: "more than a dozen years of economic stagnation, political instability, and confrontation."

Saddam Hussein Comes to Power

The Ba'ath party returned to power in a 1968 coup (in which Saddam Hussein became vice president, deputy head of the Revolutionary Command Council, and increasingly the real power), and that party continued the course toward extricating the oil industry from the grip of the IPC. Finally in 1972 the IPC was nationalized, its shareholders paid a compensation of $300 million (effectively offset by company payment of $345 million in back claims). The country turned to France and the Soviet Union for technical assistance and credit. The Soviets developed the North Rumaila field more or less on schedule by 1972.

For the Soviets, Iraq was an important breakthrough in the region: Iraq had vast oil reserves, unlike Egypt and Syria with whom the Soviets had ties (they were ejected from the former in 1972). It thus yielded lucrative oil contracts, investments in Eastern Europe from its oil surpluses, massive arms sales, and the promise of greater Soviet influence in the region. France, too, maintained ties with Iraq's oil industry. (Significantly, despite the overwhelming importance of oil to Iraq's economy, and the heavy price of its dependence on foreign firms, the country did not bring about the level of technological self-reliance in this field that socialist China did during the same years. Rather, it merely attempted to loosen the bonds to the U.S.-U.K. oil giants by tying up with other advanced countries.)

The Iraqi nationalization took place against the background of increasing assertion by even pro-U.S. regimes in the region. Radical Arab oil experts (most prominently Abdullah Tarild) gripped the popular imagination with their well-documented exposures of how the oil wealth of the Arab lands was being looted; the Organization of Petroleum Exporting Countries (OPEC) actively demanded better terms for their oil; a group of young army officers led by Muammar Qaddafi overthrew the Libyan monarchy in 1969 and called for confrontation with the oil giants; and the armed Palestinian struggle was born. The defeat of the Arab armies in the 1973 war with Israel further stoked anti-American sentiment. The process culminated with an Arah oil embargo against the Western states and a massive increase in prices paid to oil producing countries. Iraq, as a major oil producer (with the world's second-largest reserves, after Saudi Arabia), played a crucial role in mounting this challenge.