War in Iraq and the Plunder of Kurdish Oil

The following is an edited excerpt from Erin Banco's book, Pipe Dreams: The Plundering of Iraq's Oil Wealth, which will be published on January 30 by Columbia Global Reports.

Fouad Hussein's Lexus SUV roared down the dusty highway on the outskirts of Kirkuk, an oil-rich city in Iraq. Once optimistic about his country, Hussein was now taking me on a dispiriting tour as he unwound a dispiriting story. It was the winter of 2016, and Iraq was in its third year of war against the Islamic State group. Just over 50 miles south, in the town of Tuz Khurmatu, Kurdish militias were facing off against Shiite fighters backed by the Iraqi central government, all vying for greater control over Kirkuk.

The battle with ISIS had drained public coffers and contributed to a humanitarian disaster. As the economy declined, some international oil companies had begun to wonder whether Iraqi Kurdistan was still a good investment. Some had pulled out of the region. Several had not received payouts from the cash-strapped Kurdistan Regional Government as promised in their contracts. And despite raucous demands, the government had not paid civil servants in months.

Hussein, a member of the province's oil and gas committee, had lived in Kirkuk most of his life. He has seen his people killed and driven from their homes under Saddam Hussein's Anfal campaign—a military operation launched against the Kurds in 1988. And then, after the U.S. ousted the Iraqi strongman in 2003, he saw hundreds of thousands of people begin to hope.

Related: Ex-Leader of Iraqi Kurds says U.S. knew in advance about assault

Oil was a big part of their dreams, he said. Iraq sits on some of the world's largest oil reserves. And one promise the U.S. made to both the Kurdish Regional Government and Baghdad was that after the bullets stopped flying, after Saddam had been vanquished, their lives would be made immeasurably better. Billions of dollars could flow from Iraq and Iraqi Kurdistan's oil wells, replacing chaos and poverty with wealth and prosperity.

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A firefighter surveys a burning oil pipeline following a blast on the outskirts of the northern city of Kirkuk, Iraq, on February 26, 2005. REUTERS/Salah al-Deen Rasheed

Many in Iraqi Kurdistan believed such promises. But today, most have not come to fruition. The oil money has flowed into the region, but little has reached ordinary people, either directly or in the form of regional projects.

Iraqi Kurdistan seems to be a classic example of the resource curse. Oil is found, pumped, shipped and sold (and sometimes stolen). Regimes, politicians, ministers and companies come and go. And yet the average person benefits marginally if not at all. The chaos of war, terrorism and political infighting explains some of this. For the Kurds, greed and fraud, tolerated if not abetted by U.S. and multinational oil companies, lie at the center of their dashed oil dreams. The curse is one shared by those living under the leadership of the central government, though that story—one filled with fraud and mismanagement—reads much differently.

In Iraqi Kurdistan, oil revenues have funded the Kurdish military in its fight against ISIS, but some of that cash been siphoned off. Members of the Kurdish political elite, working with U.S. and multinational oil firms, created a system of pay-to-play contracts and kickbacks that enriched themselves.

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Iraqi Kurds in Erbil, Iraq, celebrate the arrival of U.S.-led coalition forces in Baghdad in 2003. REUTERS

Oil data in Iraq is difficult to decipher. Many of the reports on oil exports and revenues do not separate Baghdad's revenue from Iraqi Kurdistan's. Other oil data is held only by industry analysts and is not always available to the public. One estimate predicts oil in Iraq has produced more than $700 billion in revenues since 2003—accounting for about 80 percent of all of the country's funding. By some accounts, billions have disappeared due to fraud. Oil analysts have said years of mismanagement caused the government to misuse its oil revenues in a way that leaves little money for things like schools and infrastructure.

The corruption in Iraqi Kurdistan's oil sector starts within its ministries, particularly in the Ministry of Natural Resources, and is fueled by rivalries within the political system. Interviews with financial regulatory enforcement officers in the U.S. and the U.K., along with thousands documents they gave me, reveal the ministry and its political allies in the Kurdish leadership often sold off valuable oil assets to shell companies in the British Virgin Islands and other tax havens. Then the oil ministry quickly flipped these assets, giving huge profits to major international oil companies listed on stock exchanges in London, Canada, Oslo and New York. In other scenarios, subsidiaries of shell corporations paid the Kurdish government for oil blocks. The government then transferred some of that money to accounts earmarked for companies whose owners were members of the main political parties.

Some major American players in this web have defended U.S. corporate involvement, noting that post-Saddam, the Iraqis and Kurds were eager to develop their oil industry, and in some cases all but begged Americans to enter into contracts. But ordinary Kurds don't believe this explanation. They point out that some former high-ranking Bush administration officials—who had advocated for the overthrow of Saddam—leveraged their government positions, contacts and insider knowledge to make fortunes from Iraqi and Kurdish oil. Today, some of these people continue to sit on the boards of, or have lucrative jobs as advisors to, these same multinational oil firms.

As the corruption festered after the invasion, the U.S. State Department kept watch, according to documents released by WikiLeaks. It was aware that corruption was routine in Iraqi Kurdistan, where elite families with deep tribal and political connections were complicit in creating a system that enriched themselves.

Navigating the oil sector in Iraqi Kurdistan is often complicated. In a place with little transparency, where corruption has long been considered normal, where journalism is often just a front for political parties to embarrass rivals, truth, impartial reporting and honest data are hard to come by.

But during my time in Iraq, I cultivated a source who had worked in the Kurdish oil sector and knew the players well, which helped. We often talked often about ISIS and how the war impacted the Iraqi economy. At the time, in the summer of 2014, many companies were unsure about whether to pull their people out of the country or whether the war would hurt sales. The source introduced me to people who worked in the financial regulatory fields. I spent years talking with them. And they started sending me documents. It seemed that they wanted to expose the details of cases that never went anywhere, were kept secret for political reasons or were still under investigation but had not moved forward. I received hundreds of documents detailing transactions between the Ministry of Natural Resources and multinational oil companies that U.S. and U.K. regulatory enforcement officers say reveal thinly disguised kickbacks and a pay-to-play oil sector.

Pipe Dreams
Erin Banco’s book, "Pipe Dreams: The Plundering of Iraq’s Oil Wealth" (Columbia Global Reports, 2018). Columbia Global Reports

The kickbacks are part of a system that has developed cracks, in part because U.S. and other multinational oil companies, eager to jump into Kurdistan when they realized billions could be made, have since withdrawn from the region. For some, the ministry that induced them to come to Iraqi Kurdistan began rewriting their lucrative contracts. Then, as ISIS squeezed off oil production and a refugee crisis peaked, the ministry failed to pay billions the companies say they were owed. Several of these disputes have played out in courts in London and revealed the inner workings of the Ministry of Natural Resources.

With the economy in a tailspin, average Iraqi Kurds are feeling the effects—from a mother I interviewed on the outskirts of Kirkuk who can't pay for a doctor to cure her son's skin rash to a 12-year-old boy who sits on a bucket on the side of the highway in Erbil, begging construction workers to stop and hire him. These people remain cynical—not only about their governments—but also the one in Washington.

Some 15 years after the invasion, many Iraqis say the West's presence in the country feels as potent as ever. They say their country has never truly been given back to them. And most are not optimistic that it will move in the right direction anytime soon.

And perhaps with good reason. In the fall of 2017, after Iraqi Kurds passed a referendum for greater autonomy, fighting broke out between Kurdish and Iraqi militias. Iraqi forces moved into Kirkuk, taking over key positions and gaining control of the oilfields. The intense standoff not only escalated tensions between Baghdad and Erbil, but also caused internal rifts between the main Kurdish political parties and their soldiers. The skirmishes seemed to wipe away any hope that the Kurds would soon solidify their control over Kirkuk and gain independence from the central government.

Meanwhile, there is a new leader in the White House who seems to know little about Iraq and even less about its oil politics. Yet his secretary of state, the person charged with overseeing diplomatic relations, is former ExxonMobil CEO Rex Tillerson, a man who has long been a powerful player in Iraqi Kurdistan's oil sector.

On the day after he was sworn in as America's 45th president, Donald Trump gave a speech at the CIA, saying that although he didn't approve of the Iraqi invasion, he thought the U.S. should have done more to profit off the country's natural resources. "We," he said, "should have kept the oil."

In a way, we did—something Hussein and other Kurds know all too well.