Book: Private Empire: ExxonMobil and American Power

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Eleven

 

“The Haifa Pipeline”

 

On February 11, 2003, Douglas Feith, the Bush administration’s under secretary of defense for policy, appeared before the Senate Foreign Relations Committee, where he argued that the Iraq War, if it arrived, would not be a war for oil. “All of Iraq’s oil belongs to all the people of Iraq,” Feith said. The Bush administration had “not yet decided on the organizational mechanisms” through which the Iraqi oil industry might be restructured after the overthrow of Saddam Hussein, but he felt that he should “address head-on the accusation that, in this confrontation with the Iraqi regime, the Administration’s motive is to steal or control Iraq’s oil.” That charge was commonly made, but it was “false and malign.”

By the time of his Senate testimony, Feith had already become a punching bag for opponents of the Bush administration and its foreign policies. He was a tall, extroverted man with a mop of graying hair and round wire-rimmed glasses. His articulate self-confidence was of the type associated with student council vice presidents, and it grated on some people similarly; General Tommy Franks, then in command of all U.S. military forces in the Middle East, told colleagues at the time that he considered Feith “the fucking stupidest guy on the face of the Earth.” (Franks’s Pentagon colleagues debated his own acumen.) A lawyer in private practice before joining the Pentagon at the request of Secretary of Defense Donald Rumsfeld, Feith proved willing, at the least, to argue like a litigator about the rationales for a U.S. invasion of Iraq.

He told the senators that the United States had no historical record of stealing other countries’ resources through war. “We did not pillage Germany or Japan; on the contrary, we helped rebuild them after World War II,” he said. After Desert Storm, the U.S.-led campaign to liberate Kuwait from Iraq, which prevailed in 1991, “we did not use our military power to take or establish control over the oil resource of Iraq or any other country in the Gulf region.”

The idea that the Bush administration would take on the human and financial costs of overthrowing Saddam Hussein’s regime in Iraq for the sake of grabbing that country’s oil did not make logical sense, Feith continued. “If our motive were cold cash, we would instead downplay the Iraqi regime’s weapons of mass destruction and pander to Saddam in hopes of winning contracts for U.S. companies,” he said. “The major costs of any confrontation with the Iraqi regime would of course be the human ones. But the financial costs would not be small, either. This confrontation is not, and cannot possibly be, a moneymaker for the United States. Only someone ignorant of the easy-to-ascertain realities could think that the United States could profit from such a war, even if we were willing to steal Iraq’s oil, which we emphatically are not going to do.”

In the weeks to come, Bush administration cabinet officers and independent analysts would endorse Feith’s position that the war had, as Defense Secretary Donald Rumsfeld put it, “literally nothing” to do with oil. The administration published its war aims; these made no mention of energy or economic issues. The invasion’s stated goals were to eliminate Iraq’s weapons of mass destruction, end the threat Saddam posed to neighboring governments, stop his regime’s internal tyranny, cut off his links to terrorism, maintain Iraq’s territorial integrity, liberate Iraq’s people, and create a democracy. It was true that Saddam’s capacity to threaten the world was in part a result of the cash he received from oil sales; in that limited but important sense, the administration’s war aims could be said to be about oil. It could also be argued that the United States would not have incurred all the risks and costs of invading Iraq if the country did not have large oil reserves and therefore an innately important place in the global economy and regional power balances. But that was different from arguing that the United States intended to launch a war for the purpose of acquiring Iraq’s reserves.

What would it mean, in any event, for the United States to “steal” Iraq’s oil? The question itself illuminated America’s dysfunctional search for a national understanding of “energy security.” The United States formally owned oil only to operate government vehicles and aircraft, and to fill a 700-million-barrel strategic petroleum reserve. The government amply met these needs by purchasing oil on the open market. The American economy required about 12 million barrels of imported oil every day in 2003, but these supplies were purchased from private and government-owned oil producers around the world; invading Iraq wouldn’t change that market much, except perhaps unfavorably, from an American perspective, by raising prices through the disruptions caused by war. It was possible to imagine that President Bush might wage war as a conscious or unconscious proxy for the interests of American-headquartered oil companies, notwithstanding the fact that most of these companies were global in scale, employed more foreigners than Americans, and paid more taxes to overseas governments than to the United States Treasury. Yet even if the Bush administration were thoroughly infused by such corporate-inspired perfidy, invading Iraq did not seem like an especially cost-effective way to help ExxonMobil, Chevron, or Conoco expand their booked oil reserves. In an essay published on the Iraq War’s eve, the oil analyst Daniel Yergin argued that even a “liberated” Iraq might be reluctant to allow much direct participation in its oil sector by American firms, because of the prevalence of resource nationalism among Arab populations. He cited the example of Kuwait: “After the 1991 Gulf War, a liberated and grateful Kuwait announced that it would open its oil industry to foreign investment in order to boost production. Eleven years later, that still hasn’t happened, owing to nationalistic opposition.”

Perhaps, then, the invasion of Iraq would be a war for oil in a geopolitical sense, for the purpose of increasing Iraqi oil production from the moribund levels of the Saddam Hussein era, and by doing so reducing world oil prices and America’s dependence on Saudi Arabia. In the run-up to the invasion, a few conservative thinkers floated versions of this rationale, inflamed in part by evidence of Saudi Arabia’s support for Islamic radicals such as those responsible for the September 11 attacks. But although Iraq had large untapped reserves of 115 billion barrels or more, its daily production amounted to only 2 or 3 percent of the world’s total. After a U.S.-led invasion, even if all went well, it would take a decade or more to double Iraqi production to 6 million barrels per day, and even then Iraq could not hope to challenge Saudi Arabia’s dominance as the world’s most influential “swing producer” and price setter in oil markets, a producer able to raise or lower output as market conditions demanded. Saudi production capacity would still likely be twice that of Iraq’s.

Nonetheless, as the war befell them, even Iraqis with a sophisticated understanding of the global oil economy remained suspicious about American motives. They did not believe, necessarily, that the United States intended to steal their country’s reserves directly, but they regarded Iraq’s oil as an essential context for the American invasion. History influenced them; without question, oil grabs had shaped Western intervention in the Middle East in the past. “The First World War was not about oil,” said Tariq Shafiq, who would help to draft Iraq’s postinvasion oil law. “But the loot to the victorious winner was the oil concessions in the East. The intention was not there, but that was the obvious outcome. Today with the oil being really the core of our civilization . . . you would expect that oil was a factor.”

From its thunderous opening salvos in the early hours of March 20, 2003, the American-led invasion of Iraq did unfold in ways that exacerbated such doubts, particularly among Iraqis. On their initial drive to Baghdad, American tanks and Jeeps refueled at depots called Exxon and Shell. The decision to choose those code names might be dismissed as the tone-deaf error of midlevel staff in the Pentagon’s bureaucracy. It proved to be a signal of a deeper and persistent ambiguity.

Talking points written at the National Security Council and handed out to American officials charged with making contact with Iraq’s oil bureaucrats during the early days of the invasion instructed them to emphasize, “We’re not here for the oil; the oil belongs to the Iraqi people.” Paul Bremer, the head of the Coalition Provisional Authority, or C.P.A., and the de facto regent of the country until 2004, declared that Iraq’s “natural resources should be shared by all Iraqis” and that revenues from the sale of oil should be placed in transparent bank accounts to create a “humane social safety net” for the Iraqi people. In private, however, officials within Bremer’s occupation authority wrestled over the “organizational mechanisms,” as Douglas Feith had put it, that would govern Iraq’s postinvasion oil industry.

Standard Oil first invested in what became the Iraq Petroleum Company in 1928. By the 1960s, international oil companies, including Esso, the ExxonMobil precursor, still owned a share of Iraq Petroleum. Iraq later nationalized its oil industry and organized state-owned firms, akin to Saudi Arabia’s Aramco. In its heyday, the flagship Iraq National Oil Company and its affiliates were highly professional, led by Iraqi engineers trained in the United Kingdom and the United States. Under Saddam Hussein, however, the state-run oil complex atrophied. By the time of the U.S.-led invasion, a few aging technocrats held Iraq’s oil infrastructure together with proverbial gum and paper clips. The complex’s maintenance problems ran so deep, “you could have brought the whole of ExxonMobil out there and they wouldn’t have been able to operate that thing worth a damn,” said Philip J. Carroll Jr., a former president of Shell U.S.A., who was appointed by Secretary of Defense Donald Rumsfeld to serve as Paul Bremer’s first senior oil adviser.

Even before the American invasion, it was clear, at least to some Iraqi exiles and American war planners, that a post-Saddam Iraqi government would have to consider whether to invite international oil companies to invest and help solve these deep-seated infrastructure problems. If a “liberated” Iraqi government wanted to draw on large sums of international capital to revitalize oil production, it would probably have to give up at least some equity oil reserves in return, by signing production-sharing contracts with international oil majors or through outright privatization. And yet allowing foreign companies to own Iraqi oil would undermine the Bush administration’s public narrative that the war would not reduce Iraq’s sovereign control of its natural resources. A desperate Saddam Hussein, toward the end of his time in power, had signed production-sharing contracts with Russian and Chinese companies, but those agreements had never been implemented. Otherwise, no Iraqi government had allowed outside oil ownership in four decades. Some financially and politically weak nations elsewhere still accepted production-sharing contracts—Azerbaijan, Indonesia, and Chad were among them—but such deals typically generated controversy, and they had essentially been banished as a contract genre in the Middle East.

Bush administration war planners anticipated this dilemma as they worked in secret before the conflict. The Oil and Energy Working Group of the Future of Iraq Project, a State Department planning body, noted in a paper written early in 2003 that postwar Iraq would require foreign investment “on the terms that best, rapidly and significantly increase [oil and gas] production,” but that Iraqi privatization schemes or production-sharing contracts could “engender opposition from those who see this as selling out to foreign oil companies.”

Some free-market conservatives within and around the Bush administration saw no reason why a post-Saddam Iraqi government should feel embarrassed about trading some oil reserves for access to foreign capital and technology. In their view, all countries were better off if they privatized their economies to the greatest possible extent. “Privatization works everywhere,” a paper published by the Heritage Foundation in 2002 declared. Its authors urged the Bush administration to work with Iraqi opposition leaders at once to “prepare to privatize government assets” after Saddam’s overthrow.

In Baghdad, immediately after the invasion, Thomas Foley, a business school classmate of George W. Bush’s, organized a cell of privatization enthusiasts inside Paul Bremer’s C.P.A.; Foley and his colleagues pushed plans for a “broad-based, mass privatization program” even before a transitional Iraqi government could be established. Iraqi technocrats who served as caretakers at the oil ministry in that chaotic spring and early summer of 2003 following Saddam’s fall were stunned by the radicalism of some of the ideas the arriving Americans proposed. Pentagon planners suggested that Iraq should consider withdrawing from O.P.E.C. “This was part of the neoconservative view: Why have Iraq in O.P.E.C.?” recalled one American official involved. “‘Let’s break the cartel!’” The idea seemed preposterous to experienced Middle East hands, as such a proposal would only confirm ordinary Iraqis’ worst fears about American intentions. State Department opponents of the proposal sought to dismiss it “out of hand,” an official involved recalled. And yet, the idea “kept resurfacing.”

Pentagon officials also suggested that Iraq’s oil ministry look into shipping crude down “the Haifa pipeline,” as they referred to it. The pipeline had been constructed in 1934 to serve territory that eventually became part of the state of Israel. It ran from Iraq’s oil-producing region around Kirkuk through Jordan to modern Israel’s coastal city of Haifa. It ceased operations after Israel’s birth in 1948, but it was marked on old maps.

After the invasion, Michael Makovsky, a member of the Pentagon’s Iraq oil planning team under Feith, chaired weekly telephone conferences with American oil advisers in Baghdad. Late in the spring of 2003, Makovsky asked that inquiries be made at Iraq’s oil ministry about the old pipeline’s status. Was it operational? Could it be repaired or placed into service?

The assignment fell to Gary Vogler, a West Point graduate and former Mobil Oil executive who had entered Baghdad with the first wave of American civilians as part of the oil advisory team led by Phil Carroll. Vogler considered himself to be “politically naive.” In the first weeks after the invasion, he established a strong working relationship with Iraq’s interim oil minister, Thamir Ghadhban, a career ministry engineer who had been jailed briefly by Saddam but who had stayed and survived his reign. One day, Vogler traveled to the oil ministry and found Ghadhban at his desk, juggling telephones.

Vogler asked about the pipeline to Haifa. Ghadhban looked at him icily. “There are a lot of people in my organization, in the ministry, and throughout the country, who feel like the only reason why you guys came into this country is to get oil out to Israel,” he said. “If I go out with a question like that, I’m only going to solidify their viewpoint.”

“Forget I asked you that,” Vogler said. “Don’t follow up on it unless I ask you again.”

The queries from Makovsky, in Washington, continued. Vogler resisted the questions, asking why Makovsky kept making such an issue of a pipeline that had never been discussed in prewar planning. The purpose of the questions seemed vague. “Put in writing what you need and why you need it,” Vogler requested.

In an interview years later, Makovsky said he could not recall discussing the pipeline with Vogler, but he did remember being asked to review the pipeline’s status by superiors at the Pentagon. “The Israelis were at one point interested in this at the beginning of the war,” he recalled. “I was asked by an official to look at this.” He investigated and wrote a brief report. “There were a lot of things I looked into that didn’t go anywhere. I’m not aware of anyone in the U.S. government who was advocating building a line from Iraq to Israel. . . . I never advocated anything like that.” Douglas Feith, too, said the idea surfaced with “lower-level Pentagon officials” and he “never supported the proposal.”

Makovsky clashed regularly with Vogel; he felt that the former Mobil executive was unreliable. A third American official who participated in the pipeline discussions in 2003, and who respected both Vogler and Makovsky, recalled that Makovsky’s true purpose was to find an export route for Iraqi oil that would bypass Syria and benefit Jordan, not Israel. “Mike’s view is that you can’t have it go to Israel—he would like that, but he realizes you can’t have that,” this official recalled. Still, Makovsky was, in this participant’s estimation, tone deaf. “What does he always refer to it as? ‘The Haifa pipeline.’” Makovsky said later that aiding Jordan and undermining Syria was indeed the reason he was at times animated about the possibility of resurrecting the pipeline. He continued for years afterward to write articles supporting a pipeline route from Iraq to Jordan, arguing that it would create “an opportunity to export oil both to Asia, where demand is growing, and to Europe and the United States.”

Eventually, unhappily, Ghadhban made the inquiries demanded by his American liaisons. He reported back with evident satisfaction that the pipeline in question barely existed anymore; it had not been maintained for decades and had been pulled apart in places by scavengers. There was nothing, realistically, that could be done for now.

These awkward early exchanges coincided with high-level reviews of how Iraq’s state-owned oil industry should be restructured to attract foreign investment and improve production rates. Philip Carroll, the senior adviser, was a patrician and a deeply experienced peer of Vice President Cheney’s in the oil business. After running Shell’s American division, he had been recruited to turn around troubled Fluor Corporation, a government contractor and Halliburton competitor. At the time of the Iraq invasion, Carroll held a top secret security clearance from his Fluor days. He was a close social friend in Houston of George H. W. and Barbara Bush, the American president’s parents. Carroll had reluctantly accepted a six-month Baghdad assignment at Rumsfeld’s request; he considered it a call to national service that he could not refuse, although it would cost him about a half million dollars in foregone private sector compensation and require him to live in spartan conditions in Iraq’s Green Zone.

Carroll waged a rearguard battle in Baghdad against the Bush administration’s more radical privatization advocates; he made clear that he would resign rather than participate in a precipitous sell-off of Iraq’s oil assets, according to one career intelligence analyst who worked with him at the time. Carroll, too, was a believer in free markets, but he knew the Middle East and he felt that the United States had no choice but to go slowly and defer to Iraqi decision making. Iraq’s nationalism, coupled with the visible trends toward state ownership in the global oil industry, suggested that postwar Iraq should probably reestablish its state-owned oil company, at least as a first step. Carroll’s personal view was that if he were running Iraq—“And believe me, I never want to do that”—he would build up a strong nationalized oil company and then later invite private international oil companies to invest as partners in Iraq’s fields. That “mixed model” would free up Iraq’s national revenue for “crying needs” in education, health care, and other social sectors. “If you bring in Exxon, with a very fat checkbook, they could basically throw money at something and get things done very quickly,” Carroll said. Iraq would probably have to give up some oil ownership in exchange for such investment capital, but it would also gain access to the latest industry technologies and training. In any event, Carroll felt that he should not impose his private opinion on the interim Iraqi administration. He wanted to help Thamir Ghadhban and other key Iraqis “at least begin to be thinking” about their options for reorganizing their country’s oil industry.

He advocated approaches that might favor private oil companies in the longer run, however. On June 26, Carroll wrote a memo entitled “Future Policy Issues Concerning the Ministry of Oil,” addressed to Paul Bremer. He noted that raising Iraqi production to its full capacity of about 6 million barrels per day might require as much as $30 billion or more in long-term capital investments. This raised the question of “when to invite new upstream discussions with prospective partners” from the oil industry. Carroll wrote that the next twelve months would not be “too early to start talks.” He foresaw “an extended period to exchange concepts and to establish relationships.”

Under the heading “Privatization in the Oil Sector,” he continued, “Needless to say, this will be a very contentious issue within the Ministry, the government, and the population at large.” He argued against a precipitous sale of stock in Iraqi oil enterprises. A trust fund for Iraqis, “along the lines of the Alaskan model,” whereby regular cash royalties were paid to citizens, would be preferable. He also suggested that it “would be in the U.S. interest” to develop an educational program for employees of Iraq’s oil ministry—specifically, “comers” who could be trained in the United States. Such a program “would not only meet the ministry’s needs but [would] begin to build a group of future leaders who would have a taste of U.S. life.”

Carroll’s memo accurately forecasted the Bush administration’s oil policy in postwar Iraq. The policy was constructed to protect Iraqi decision-making prerogatives but also to account for enduring American interests, including those of U.S.-headquartered oil corporations. As Iraq’s anti-American insurgency intensified after 2004, the Iraqi state’s capacity to manage its own affairs gradually weakened. Iraq’s potential to oversee oil production on its own, which would have been challenging in any circumstance, gradually became all but impossible. International capital and private oil companies would be required to rescue Iraq’s position whenever the internal violence generated by the American invasion calmed. As Tariq Shafiq had observed about the First World War, access by Western companies to Iraq’s oil did not need to be an explicit cause of the Bush administration’s invasion to become an outcome.

Douglas Feith had been thinking about global oil security issues since the first term of the Reagan administration, when he worked on energy policy as a young staffer at the National Security Council. He considered himself something of a contrarian on the subject. After the oil shocks and embargoes of the 1970s, it was common in Washington to think of “energy security” as a problem in which newly powerful Arab exporters could wield the “oil weapon” over vulnerable Western importers.

This was the political science model of oil security, as Feith put it. Oil supplies lay scattered around the globe, as on the board of a Risk game, and governments competed for advantage and control. The United States military developed contingent plans to seize oil fields in Saudi Arabia in an emergency, particularly if the Soviet Union moved against them. Hostile governments might squeeze the United States by withholding its oil, as the Saudis and other Arab producers had done over American policy toward Israel. A logical response to this embargo threat was the one taken by President Gerald Ford in late 1975, when he signed into law a bill that authorized, among other things, the construction of the strategic petroleum reserve, where the United States could store volumes of oil equivalent to several months of imports, to be released in the event of an embargo or supply disruption. The S.P.R., as it was known, provided the United States with a countermove against hostile oil producers in any contest of physical access. The reserve’s existence presumably deterred oil-producing enemies from imposing embargoes. If one was imposed anyway, the S.P.R. provided Washington with time to pursue military or other interventions against the aggressor.

Feith concluded that this way of conceptualizing oil security was misguided. He was a young free-market thinker and he noted that neither economists nor oil industry executives saw the global oil market the way political scientists or naval blockade strategists did. In the economists’ view, oil was a commodity just like any other commodity. As was true for cocoa or coffee, there was a single global market for oil. There were gradations of price for different types of oil quality, but fundamentally, oil’s global price went up or down on the basis of worldwide supply and demand. The best way to visualize the market was to think of a global bathtub or pool of oil with spigots pouring into it from many different exporting countries and customers piping out supplies where they required them.

Traders and speculators set the price of a new barrel of Iraqi or Russian or Chadian crude in Rotterdam’s spot market or on futures exchanges in London, New York, and Chicago. In such a system no single oil producer could disrupt supplies or control prices very effectively for long, Feith believed. A major producer like Saudi Arabia or the O.P.E.C. cartel could attempt to withhold supplies and by doing so prop up prices temporarily, or try to punish a particular importer through a targeted embargo, but the forces of economic gravity in the pooled global market were likely to prevail over time. When global prices rose, as they did during the 1970s, the incentives to invest in new oil production also increased, and so new supply came on line, which in turn reduced global prices again—exactly as occurred during the 1980s, when Feith worked at Reagan’s N.S.C. He noted that the collapse in the price of oil during the 1980s was precisely the opposite of what many political analysts inside the United States government had predicted. President Jimmy Carter’s 1977 National Energy Program presumed that oil would become “very scarce and very expensive in the 1980s.” In 1979, the Central Intelligence Agency forecasted, “The world can no longer count on increases in oil production to meet its energy needs.” Why were they wrong? Feith thought he knew the answer: The history of commodities was one of prices going up, supplies increasing, and prices falling back down again. Oil, fundamentally, was no different. The timelines required to bring new supplies on line were longer than, say, the planting of corn crops, but the underlying economic pattern was the same.

One implication of this analysis was that the geographical origins of a particular barrel of oil did not matter very much. Except for the issues of a particular barrel’s quality—that is, the ease with which it could be refined—and transportation costs, global oil traders did not care whether a new barrel poured from a spigot in the Middle East, Latin America, Australia, or Africa. As it happened, half or more of global oil reserves lay in the Middle East, so that region’s political stability and transport lanes would always command attention. However, in an economic sense, the Middle East’s barrels were the same as all others.

Feith’s views were reinforced by what happened in international oil markets after Islamic radicals seized power in Iran in 1979. Carter imposed a boycott on Iranian imports, but Iranian oil just found its way to European and other international traders. Those traders often resold Iranian oil on the spot markets. Other producers who had previously sold to Europeans now sold to American companies. Global supplies and prices proved to be resilient. Companies, not governments, decided where particular batches of oil were shipped for refining, on the basis of price, transport, and technical factors.

Within the Bush administration, by the time of the Iraq invasion, this free-market vision of a single, liquid global oil market had taken hold as a kind of quiet conventional wisdom—it was seen by some within the administration as a sophisticated basis for thinking about American oil security, as opposed to the misguided Risk board model of the 1970s. Rumsfeld and Stephen Hadley, the deputy national security adviser, as well as many of the economists who advised President Bush at the National Security Council and the National Economic Council, all had independently come to similar conclusions as Feith. Their consensus had clear implications for the Bush administration’s energy policy: If oil constituted a unified worldwide market, and if the United States would be an importer in that market for an indefinite time, then it was in the interest of the United States to promote policies—free trade, open markets, low taxes, maximized oil production everywhere—that would fill the global pool with as much new oil as possible, and thus keep global oil prices low, to the benefit of the American economy. The alternative policy—the pursuit of “energy independence” by one means or another—was unnecessary, too expensive, and unrealistic. This was precisely what Lee Raymond believed, and what he had reiterated to Vice President Dick Cheney when they met in Washington soon after Bush took office. Cheney understood and agreed. Besides Cheney, Raymond told his colleagues at ExxonMobil, he had met only one other world leader who truly understood how global liquid oil markets worked, and what this implied for foreign policy: British prime minister Tony Blair. Blair joked that it was good that most politicians did not understand the oil markets because if they did, “they’ll think they can do something about it.”

Although Bush’s national security team generally accepted Feith’s vision of global oil, some of them offered partial dissents. Condoleezza Rice and Colin Powell were each struck by the destructive role of oil wealth in the development of African political economies; they credited aspects of the resource curse thesis. Paul Wolfowitz, the deputy defense secretary, also accepted the resource curse thesis and he expressed interest in the thinking of those such as former director of Central Intelligence James Woolsey and the journalist Thomas Friedman, who argued after the September 11 attacks that, even setting aside the challenge of climate change, America was arming its enemies by failing to wean itself from oil because oil exporters used their easy cash to challenge American interests.

Oil security, it turned out, like other forms of economic security, lay in the eye of the beholder. One of the problems with Feith’s arguments about seamless global oil pools forever replenishing themselves was that it required other world powers to act as if they shared his understanding.

China, crucially, did not; its leaders remained steeped in the political science model of oil power. Douglas Feith was a man of exceptional belief in himself, however. He was quite certain that his views of markets, history, and global oil security were correct. Feith’s responsibilities included cochairing ongoing bilateral defense talks with Chinese counterparts. Soon after the invasion of Iraq, he decided to try to talk the Chinese government into changing its understanding of the character of the global oil market to conform to his own.

China became a net oil importer in 1993. That followed a much-hyped but failed search, in which Exxon had participated, for oil reserves in China’s northwest Tarim Basin. “It was going to be the new Saudi Arabia and all that kind of thing,” an executive involved recalled. What they found, however, were “basically dry holes.”

By 2003, China had grown into the world’s second-largest oil consumer, after the United States, and its oil imports were skyrocketing. Around 1999, China’s Communist leadership coined a “Go Out” policy to encourage state-owned companies and diplomats to prowl the world for oil supplies that China could secure by long-term contract. Go out they did. Trade between China and Africa doubled between 2002 and 2003 to $18.5 billion; most of that increase described Chinese oil imports. Within a few years, China would invest $44 billion worldwide in oil projects, half in Africa. Its methods struck American intelligence analysts as almost neocolonial—the Chinese government seemed to place a premium on physically owning oil supplies, in the belief that ownership would promote the country’s long-term national security.

Stephen Hadley asked the Africa division of the Central Intelligence Agency for an assessment of China’s oil deals in Africa. Were they a threat to U.S. national interests? The division’s view was that “we didn’t actually see them as that much of a threat,” recalled an official involved in the review, “just an economic challenge.” The C.I.A.’s analysts worried that China could displace U.S.-based oil companies from lucrative production deals in some African countries, but that was about the extent of their concern.

David Gordon served as the Bush administration’s chief national intelligence officer for economics at the time and participated in White House–led policy reviews. In the summer of 2001, Gordon had spent a month in China, steeping himself in the issues emerging from the country’s rapid economic growth, “under the assumption that China was going to be the big economic intelligence story.”

He was struck by China’s “mercantilist approach to energy.” Gordon subscribed, essentially, to Feith’s view that the liquid, integrated nature of the global oil market meant there was no particular advantage for a country to “own” overseas supplies if it was a net importer; it was more efficient, economically, to purchase supplies as needed, unless a remarkably attractive long-term price contract was on offer. Gordon once gave a talk at a Chinese think tank in which he argued that American and Chinese energy interests “basically coincided.” The two countries shared a need to have diverse global supplies, political security in the Middle East, and security on the open seas. The Chinese “sort of took it all down,” but he could see that they did not really think that way.

At the Pentagon, Feith found himself drawn into the Chinese conundrum. The Bush administration sought to mount pressure on Sudan’s president, Omar Bashir, whose militias were responsible for a humanitarian crisis in Darfur, a separatist-minded province. Sudan financed itself with oil production and sent more than half of its oil output to China. The Bush administration wanted to persuade China to pull back from its Sudan contracts. Feith concluded that talking about a mercantile versus a free-market model of global oil in his bilateral military channel might help.

He commissioned a free-market economist, Benjamin Zycher, to create a presentation entitled “Historical Lessons from the World Oil Market” for a visiting Chinese delegation. Essentially, it was a nineteen-slide PowerPoint presentation summarizing what Feith believed he had learned from his days in oil policy research and in the Reagan administration.

The slides showed that U.S. government forecasts about oil’s future availability had always been much too pessimistic. In 1980, the U.S. Energy Information Administration projected that there were only twenty-eight years’ worth of proved oil reserves in the world remaining. Two decades later, the E.I.A. projected that there were still thirty-seven more years remaining. China did not need to lock up supplies with rogue countries like Sudan, damaging China’s global reputation, Feith told the defense delegation, because there would almost always be oil available. Moreover, China had no reason to fear a supply disruption carried out for political reasons. The “embargo threat is empty,” one of Feith’s slides declared, because any attempt to cut off oil to a particular country would be overtaken by “ordinary reselling” elsewhere in the market, just as the United States had experienced after the Iranian Revolution. As an additional source of reassurance, the United States had urged China to build its own strategic petroleum reserve, so the Chinese Communist government would have at least short-term supply security, and therefore even less reason to feel anxious about the theoretical possibility of a future embargo.

On a slide headlined “Current Chinese Activities in the World Oil Market,” the presentation noted, “It is clear that China views dependence on foreign oil unfavorably.” Past mistakes by the United States, after the 1970s, however, “offer lessons for China today.” The principal lesson, according to Feith, was this: “Dependence on foreign oil does not create vulnerability.”

His visitors from Beijing were not persuaded; China did not break its oil ties with Sudan. To the contrary, it was clear that China’s leadership did believe that its dependence on foreign oil created strategic vulnerability, because oil might be a weapon in prospective competition with the United States during the twenty-first century.

The American-led invasion of Iraq, which Feith had also helped to author, hardened the fears of Beijing’s Risk players. “They were very concerned when we went into Iraq,” said Aaron Friedberg, a China scholar at Princeton University who served from 2003 to 2005 as a foreign policy adviser to Vice President Cheney. Right-wing Chinese, outside the government, said of the United States as the invasion unfolded, “They’re putting their hands on the windpipe. They’re occupying a major oil-producing country, solidifying their grip on our supply lines.” Friedberg did not think the predominant view inside the Chinese politburo was quite so alarmist, but he and other Bush administration analysts could see that some patterns of China’s overseas oil purchasing reflected its leaders’ anxiety about the vulnerability of oil transport routes in the future—particularly on the seas.

The United States Navy ruled the world’s oceans and kept the seas open for all commerce, to support free trade. As a rapidly rising global power, however, did China really want to build an industrial economy dependent on oil supplies shipped from abroad that were vulnerable to interdiction by the U.S. Navy? In the event of a confrontation with the United States over Taiwan, for example, might not the United States use its naval superiority as a lever, threatening to cripple China’s economy by blockading oil supplies? China could construct its own blue-water navy to challenge the United States, but that would take many years, entail great expense, and risk a draining competition with Washington. Some American analysts during the first Bush term asked why China could not just content itself to “free ride” on “the fact that the U.S. Navy is the only game in town,” as Friedberg put it; that is, China could enjoy the economic benefits of secure ocean transport and allow American taxpayers to bear the price. But it was also obvious why this would not necessarily be appealing to the Chinese, looking to their future rise: “Think how we would feel if the situation were reversed.”

One alternative for the Chinese leadership was to maximize its access to oil and gas supplies that could be transported by land. This insight seemed to explain a thrust of Chinese foreign policy after 2000. There was some thinking among Chinese scholars and strategists that land-based empires seemed to last longer than those that were dependent upon the seas. The potential for land-only routes attracted Chinese strategists to Russian oil supplies—“They would like to stick a straw in Russia,” was the way Friedberg put it—as well as to neighboring Southeast Asia, where China sponsored overland pipeline construction into Burma and Thailand.

At least some strategists in the Bush administration did think of China’s dependency on seaborne oil imports as a source of potential vulnerability in the twenty-first century—just as right-wing Chinese analysts feared. In war game scenario planning involving flashpoints such as Taiwan, U.S. military planners did not always think a coercive oil blockade against China would be wise or necessary, “but they were content to see the Chinese anxious about it, because it might act as a deterrent,” said one Bush administration official.

Vice President Cheney seemed particularly interested in China’s vulnerability to U.S. naval power. His experience of the global oil market while running Halliburton had left him with a deep understanding of oil’s fungible nature. But his thinking about national security was influenced, too, by historical narratives about the rise and fall of great powers, and particularly the history of control of the seas, which had been critical to Great Britain and the United States, in succession, as a means to ensure the physical supply of commodities necessary for industrialization, including oil. Cheney read and admired The Tragedy of Great Power Politics, the 2001 book by the University of Chicago’s John Mearsheimer. Mearsheimer predicted that the competition over security among world powers—which had produced, during the twentieth century, the nine million dead in World War I, the fifty million dead in World War II, and the chronic violence of the cold war’s proxy wars—would extend into the twenty-first century “because the great powers that shape the international system fear each other and compete for power as a result.” The book’s final chapter, entitled “Great Power Politics in the Twenty-first Century,” reviewed the prospects for military and economic competition between the United States and China, including the potential of the U.S. Navy to squeeze China’s oil supplies by controlling the straits around the Persian Gulf. In all, Mearsheimer’s book was deeply pessimistic—a far cry from the free-market optimism of Douglas Feith. Cheney told colleagues that he liked the book until he reached the last chapter, where he thought Mearsheimer was a little too softheaded and hopeful that the Great Power struggles that inevitably lay ahead might be contained and managed so that they produced limited disruptions and damage.

ExxonMobil ran its own war game scenarios about oil supply disruptions. The company’s political risk analysts asked themselves what would happen in the most extreme case imaginable—for example, if Iran’s 2.3 million barrels per day of oil exports were removed from world markets because of a war, while turmoil in Venezuela simultaneously removed another million barrels per day. The shock of losing 3.3 million barrels a day of exports would certainly create price spikes, and soaring oil prices could produce economic turmoil in the United States and Europe. Physical delivery of oil, however, did not look like a catastrophic problem, the planners concluded, at least not in a crisis that lasted less than six months. The strategic petroleum reserve would help cushion any disruptions. After a certain number of months, if the reserve ran low, governments might be forced to ration. But the extremity and unlikelihood of the imagined events needed to produce such a physical supply problem suggested to ExxonMobil’s risk analysts that there was “an element of surge capacity in the global system,” as the corporation’s Rex Tillerson put it. The company’s war gaming implied that the global oil markets had become more resilient and flexible than some analysts assumed. At the same time, the threat of disruption to physical supply from rogue states “is not very well understood, in terms of what would really happen,” Tillerson believed.

“The central reality is this: The global free market for energy provides the most effective means of achieving U.S. energy security,” Tillerson said. “In the global market, the nationality of the resource is of little relevance. . . . Energy made in America is not as important as energy simply made wherever it is most economic.” Punishing sanctions and uneconomic supply lockups such as those sometimes pursued by China did undermine American security, but only because the United States should be “enlarging this global energy pool, not dividing it.”

The economic interests of ExxonMobil and other international oil companies lay squarely in the realm of Douglas Feith’s idealized vision of oil globalization, not in the realization of Mearsheimer’s pessimism. ExxonMobil’s oil and gas holdings were so widely scattered around the world that the corporation and its shareholders were at least as vulnerable to transport and production disruptions as China’s government.

This understanding of risk shaped some of ExxonMobil’s lobbying on foreign policy issues in Washington. The corporation promoted free-trade philosophies at every turn and opposed economic sanctions against oil producers, except in the most egregious cases; until September 11, ExxonMobil lobbyists in Congress had opposed oil sanctions imposed on Libya, Iran, and Syria. The corporation’s economic self-interest on the sanctions issue was obvious, but the policy arguments mounted on PowerPoint slides by its in-house advocates were broad: The creation of a free-flowing global oil pool, one shaped to the greatest possible degree by market incentives, would promote American national security, ExxonMobil’s representatives insisted.

Are people in your industry salivating over the possibility of gaining access to Iraqi oil?” an interviewer asked Lee Raymond as the war deteriorated.

“Oh, I don’t think salivating, no.”

“How would you describe it?”

“Well, I think there’s a lot of caution in our industry about it. . . . I think everybody is interested, but you need to have security. You need to have a tax structure. You need to have a legal structure. . . . And there’s no confidence that that’s going to be there for some time. So I would describe it that we’re all interested, because we know the resources are there. Whether or not there’s the framework to develop those resources in an economic fashion—the jury is out on that one.”

There was more concern within ExxonMobil about the corporation’s ability to keep replacing its reserves than Raymond let on. The numbers the corporation was reporting to Wall Street at this time were not impressive: At best, ExxonMobil seemed to be churning in place, finding only enough new oil each year to replace that which it had pumped and sold. A former manager recalled a 2004 meeting at which the message was: “We can’t get enough new assets to replace our reserves.” As a result, geologists and scientists throughout the upstream division took a fresh 360-degree review of reserve prospects worldwide. They revisited old assumptions. “They looked everywhere,” the manager recalled.

Iraq offered a potential breakthrough in ExxonMobil’s access to equity reserves, but Raymond counseled patience. ExxonMobil had owned oil in Iran and Iraq for decades during the twentieth century. It did not own oil in those countries in 2003, but twenty years into the future, as Tillerson put it, “we’ll have another set of circumstances in some of those countries.” One attribute of a nation-state ExxonMobil lacked was an army or a navy of its own. China could “free ride” on the United States Navy’s control of the open seas; Lee Raymond had no choice but to free ride on the Bush administration’s efforts to subdue Iraq.

Raymond had been a friend of Vice President Cheney’s for more than a decade. He was not immune, however, to the disillusionment that set in among many conservative Republicans as the Iraq War deteriorated and the Bush administration’s overreach and incompetence in the conflict became increasingly exposed. As a global business leader whose corporate profits depended on international stability, Raymond identified more with Republican realists such as George H. W. Bush or his former national security adviser Brent Scowcroft than with the more idealistic activists and democracy promoters around Bush’s son. ExxonMobil and its generations of home-bred executives felt they had learned long ago to deal with the world as it was, to bargain as needed with dictators and authoritarian emirs and revolutionary leaders. The transformational, Wilsonian streak in Bush’s democracy promotion in the Middle East after September 11 increasingly discomfited Raymond. The ExxonMobil chairman still trusted Cheney and saw him frequently, and he admired greatly Bush’s second Energy secretary, Samuel Bodman, a former oil industry executive. Throughout his cultivation of the Bush administration, however, Raymond purposefully kept ExxonMobil at arm’s length from the administration’s attempts to remake post–Saddam Hussein Iraq. It was not in ExxonMobil’s interests to become tainted by failed nation-building projects in a country that held one of the world’s largest unproduced oil and gas resource bases. American neoimperial ambition in Iraq might fail, but ExxonMobil’s private empire had its own enduring interests, and these should not be rushed.

Midlevel State Department officials continually summoned ExxonMobil executives to meetings about the planned revitalization of Iraq’s oil sector after mid-2003 and urged the corporation to open a Baghdad office. The Bush administration officials who ran these meetings seemed to believe that only security concerns stood in the way of ExxonMobil’s making an immediate big push for Iraq oil contracts; the State officials tried to assure the corporation that security in Iraq would soon improve, even when the daily newspaper headlines suggested otherwise.

“Nobody at ExxonMobil wants to get killed for an oil well,” Raymond’s representatives explained at these meetings, “but our greater concern is political risk.” Would there be an agreement guaranteeing the long-term presence of American troops in Iraq? What oil laws would a legitimate Iraqi government approve? Any investment ExxonMobil made in Iraqi fields would require multidecade commitments. Was Lee Raymond interested in Iraqi oil? Of course: Every corporation in the global oil industry was interested. But it was obvious that the Bush administration lacked the capacity to create conditions for ExxonMobil or any other serious international player to make a politically secure, economically rewarding deal in Iraq anytime soon.

Raymond had, in the meantime, joined the Bush administration as a partner in an oil play that might, in a single stroke, resolve ExxonMobil’s reserve replacement conundrum for years to come. Of the four nation-states with oil reserves sizable enough to transform ExxonMobil’s position—Saudi Arabia, Iraq, Iran, and Russia—one looked more plausible than the others. Quietly, without anything like the fanfare that surrounded Iraq, Raymond and his allies in Bush’s first-term cabinet had developed an opportunity on a grand scale: in hopeful partnership with Vladimir Putin.

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