"Wholesale plunder" from proposed Iraqi oil law giving control of oil fields to American and British corporations

The real reason for the invasion of Iraq, spelled out for us by the World Socialist Web Site:

Under sustained US pressure, Iraqi cabinet sends oil law to parliament
By James Cogan
World Socialist Web Site
5 July 2007

Iraqi Prime Minister Nouri al-Maliki went before the media on Tuesday to announce that his cabinet had “unanimously” approved US-backed draft legislation covering the future development of Iraq’s vast oil resources. The parliament, he declared, would begin debating the oil law the following day. He trumpetted his achievement as a key step towards finalising the “most important law in Iraq”.

The legislation embodies the criminal aims and objectives of the US invasion of Iraq more than four years ago. Behind the false claims about Iraqi “weapons of mass destruction” and links to terrorism were the ambitions of American energy conglomerates to access the country’s huge reserves—estimated at between 115 and 215 billion barrels of oil.

While the oil law has a number of implications, the most fundamental is that it would end the Iraqi state monopoly in the development of oil fields. While the Iraqi people will still constitutionally “own” the resources, foreign oil companies will gain contracts that give exclusive rights to exploration and production for periods as long as 20 years. The law leaves open the possibility for “production-sharing agreements” (PSAs) which guarantee the investing company against losses and lead to even higher rates of return.

Importantly, as far as Washington is concerned, all contracts entered into by the previous regime of Saddam Hussein—such as agreements with French, Russian and Chinese corporations—will be rendered void. US companies will be able to move in and appropriate development rights over the fields.

The propaganda surrounding the oil law is completely cynical. It is universally presented in Washington as a policy aimed at guaranteeing that oil revenues are shared by “all Iraqis”. The reality is that the entry of US and other energy giants into Iraq’s oil industry will lead to wholesale plunder. Iraq’s oil minister has predicted that as many as 65 of the 80 known undeveloped oil fields will come under foreign control. If the oil industry was developed to its full production potential, it could pump 6 million barrels a day and generate annual revenues of more than $130 billion, with the profits as high as 20 percent for the transnational companies.

It is this prize that has cost the lives of over 700,000 Iraqis and close to 4,000 occupation troops and left the country’s infrastructure devastated. Washington’s perspective is to transform Iraq into a lucrative source of wealth for American corporate interests and a military base in the Middle East to extend US domination over the resource-rich region. To achieve this, it requires both a fig leaf of legality from the puppet Iraqi parliament in Baghdad and an end to the anti-occupation insurgency wracking the country.

The centrality of the oil law to the objectives of the US occupation is underscored by its prominent place in the Bush administration “benchmarks” for the Iraqi government. Since the draft legislation was first revealed on February 26, senior figures of Bush’s cabinet, ranging from Secretary of State Condoleezza Rice, Vice President Dick Cheney to Defence Secretary Robert Gates, have visited Baghdad to bully the various Iraqi factions in the US-backed parliament to accept its terms. The White House is pressuring Maliki to push through the legislation and other key benchmarks well before September, when a report to Congress on the progress of the latest US military “surge” is due.

Little progress had been made until this week. The Kurdish, Shiite and Sunni parties that previously dominated the cabinet continued to wrangle over aspects of the proposed law, as each has sought to secure a portion of the economic spoils. Without cabinet approval, the legislation could not be placed before parliament.

Over the past two months, however, two of the legislation’s key opponents—the Shiite Sadrist movement led by Moqtada al-Sadr and the Iraqi Accordance Front coalition of Sunni Arab parties—have withdrawn their ministers from the cabinet in protest against the occupation and the government. Maliki exploited this on Tuesday to push through the legislation in a session attended by just 24 out of 37 ministers.

President Bush was so pleased with the result that he rang Maliki personally to congratulate him. Maliki is gambling that the Sadrist and Sunni boycotts will enable the oil law to be rammed through the parliament as well. The sessions slated to debate the bill this week are unlikely to be attended by more than 150 out of the 275 legislators elected in December 2005. On top of more than 80 boycotters, dozens of Iraqi politicians live outside the country due to the lack of security. A number of previous sessions have lapsed after failing to reach the required quorum of 138.

The law’s passage through parliament is far from certain, however. The fact that the legislation was not tabled yesterday, as promised, suggests that the horse-trading, arm-twisting and pay-offs is continuing to ensure its acceptance by the remaining factions attending parliament. According to the latest reports, it will be presented today and sent to a committee of review for at least a week.

The White House is depending on the Shiite fundamentalist parties that remain loyal to the Maliki government and the Kurdish nationalist parties that govern northern Iraq through the Kurdish Regional Government (KRG). The Kurdish parties, however, are insisting that the KRG, not the Baghdad government, retains power over new oil development within its territory. On Tuesday, the KRG warned that it would not accept the new legislation if it departed from the original February document that enshrined Kurdish demands.

Under pressure from Washington, a cabinet review committee in April wrote in annexes into the document that substantially reduced the power of regions and provinces over oil. The annexes sought to give financial guarantees to the Sunni parties, as part of a series of US overtures aimed at convincing elements of the largely Sunni armed resistance to make a deal with the occupation.

The bulk of Iraq’s untapped oil lies in the Kurdish north and the largely Shiite southern provinces. One factor behind the armed resistance is the fear of the Sunni establishment that regionalism will lead to the marginalisation and impoverishment of the Sunni-populated and oil-poor western and central provinces. The Shiite Sadrist movement, with its main power base in Baghdad, has also consistently upheld central control over oil production.

If the annexes have been removed by Maliki as part of a deal with the Kurdish parties, it will dramatically widen the divisions between the rival factions. Khalaf al-Ilyan, a representative of the Sunni Iraqi Accordance Front, told Iraqi television: “Any draft law that is approved in the absence of the Iraqi Accordance Front only represents the groups that approved it. If there are some who want to cancel the voices of half of the Iraqi people then they take the responsibility.” The Sadrist movement has pointedly demanded the insertion of a new clause banning the signing of contracts with any company based in a country with troops in Iraq.

A Kurdish politician, Firyad Rwandzi, told the Washington Post on Wednesday that he was confident that “everything is moving forward and there is no problem” between Maliki and the KRG. With both the Sunni and Shiite opponents of regionalism boycotting the parliament, the Bush administration may well have instructed Maliki to swing back to giving Iraqi regions and provinces jurisdiction over new production.

In the final analysis, the White House is not primarily concerned with which layers of the local Iraqi elite receive a minor share of Iraq’s oil profits, but with creating the legal and political framework for its exploitation and plunder by US corporate interests.

George Monbiot: Everywhere they go, the Olympic Games become an excuse for eviction and displacement.

ZNet carries an illuminating article by the always interesting George Monbiot on the economic exploitation that follows the Olympics around the world.

Everywhere they go, the Olympic Games become an excuse for eviction and displacement.
by George Monbiot
The Guardian
July 2, 2007

Everything we have been told about the Olympic legacy turns out to be bunkum. The Games are supposed to encourage us to play sport; they are meant to produce resounding economic benefits and to help the poor and needy. It’s all untrue. As the evictions in London begin, a new report shows that the only certain Olympic legacy is a transfer of wealth from the poor to the rich.

Both Lord Coe and the sports secretary Tessa Jowell, like the boosters for every city which has bid for the Olympics, have claimed that the Games will lever us off our sofas and turn us into a nation of athletes. But Jowell knows this is nonsense. In 2002, her department published a report which found that "hosting events is not an effective, value for money, method of achieving . . . a sustained increase in mass participation."(1) One study suggests that the Olympics might even reduce our physical activity: we stay indoors watching them on TV, rather than kicking a ball around outside(2).

And this is before we consider the effects of draining the national lottery: Sport England will lose £100m.

The government’s favourite thinktanks, Demos and the Institute of Public Policy Research, examined the claim that the Olympics produce a lasting economic boom. They found that "there is no guaranteed beneficial legacy from hosting an Olympic Games … and there is little evidence that past Games have delivered benefits to those people and places most in need."(3) Tessa Jowell must be aware of this as well – she wrote the forward to the report. A paper published by the London Assembly last month found that "longterm unemployed and workless communities were largely unaffected [by better job prospects] by the staging of the Games in each of the four previous host cities"(4).

But far more damning than any of this is the study released last week by the Centre on Housing Rights and Evictions. In every city it examined, the Olympic Games – accidentally or deliberately – have become a catalyst for mass evictions and impoverishment. Since 1988, over 2 million people have been driven from their homes to make way for the Olympics(5). The games have become a licence for land grabs.

The 1988 Olympics in Seoul are widely considered a great success. But they were used by the military dictatorship (which ceded power in 1987) as an opportunity to turn Seoul from a vernacular city owned by many people into a corporate city owned by the elite. 720,000 people were thrown out of their homes. People who tried to resist were beaten up by thugs and imprisoned. Tenants were evicted without notice and left to freeze: some survived by digging caves into a motorway embankment. Street vendors were banned; homeless people, alcoholics, beggars and the mentally ill were rounded up and housed in a prison camp. The world saw nothing of this: just a glossy new city full of glossy new people.

Barcelona’s Olympics, in 1992, are cited as a model to which all succeeding Olympic cities should aspire. But, though much less destructive than Seoul’s, they were also used to cleanse the city. Roma communities were evicted and dispersed. The council produced a plan to "clean the streets of beggars, prostitutes, street sellers and swindlers" and "annoying passers-by"(6). Some 400 poor and homeless people were subjected to "control and supervision". Between 1986 and 1992, house prices rose by 240% as the Olympic districts were gentrified, while public housing stock fell by 76%. There was no consultation before the building began – the Games were too urgent and important for that. Around 59,000 people were driven out of the city by rising prices.

Even before the 1996 Olympics, Atlanta was one of the most segregated cities in the United States. But the Games gave the clique of white developers who ran them the excuse to engineer a new ethnic cleansing programme. Without any democratic process, they demolished large housing projects (whose inhabitants were mostly African-American) and replaced them with shiny middle-class homes. Around 30,000 families were evicted. They issued "Quality of Life Ordinances", which criminalised people who begged or slept rough. The police were given pre-printed arrest citations bearing the words "African-American, Male, Homeless": they just had to fill in the name, the charge and the date. In the year before the Games, they arrested 9,000 homeless people(7). Many of them were locked up without trial until the Games were over; others were harassed until they left the city. By the time the athletes arrived, downtown Atlanta had been cleared for the white middle classes.

In Sydney there was much less persecution of the poor. But the economic legacy was still regressive: house prices doubled between 1996 and 2003. No provision was made for social housing in the Olympic Village, and there were mass evictions from boarding houses and rented homes, which the authorities did nothing to stop. The old pattern resumed in Athens, where the Olympics were used as an excuse to evict 2700 Roma, even from places where no new developments were planned.

In Beijing, 1.25m people have already been displaced to make way for the Games, and another quarter of a million are due to be evicted.

Like the people of Seoul, they have been threatened and beaten if they resist. Housing activists have been imprisoned. One man, Ye Guozhu, who is currently serving four years for "disturbing social order", has been suspended by his arms from the ceiling of his cell and tortured with electric batons. Beggars, vagrants and hawkers have been rounded up and sentenced to "Re-Education Through Labour". The authorities are planning to hospitalise the mentally ill so that visitors won’t have to see them.

London is about to establish its credentials as a true Olympic city by evicting gypsies and travellers from their sites at Clays Lane and Waterden Crescent. 430 people will be thrown out of the Clay’s Lane housing co-op and an allotment 100 years old will be destroyed to make way for a concrete path that will be used for four weeks(8). Nine thousand new homes will be built for the Games, but far more will be lost to the poor through booming prices: they are rising much faster around the Olympic site than elsewhere in London(9). The buy-to-let vultures have already landed.

The International Olympic Committee raises no objection to any of this. It lays down rigid criteria for cities hosting the Games, but none of them include housing rights(10). How could they? City authorities want to run the Games for two reasons: to enhance their prestige and to permit them to carry out schemes that would never otherwise be approved. Democratic processes can be truncated, compulsory purchase orders slapped down, homes and amenities cleared. The Olympic bulldozer clears all objections out of the way. There can be no debate, no exceptions, no modifications.

Everything must go.

None of this is an argument against the Olympic Games. It is an argument against moving them every four years. Let them stay in a city where the damage has already been done. And let it be anywhere but here.

George Monbiot’s book Heat: how to stop the planet burning is now published in paperback.

www.monbiot.com

References:

1. Department for Culture, Media and Sport/Cabinet Office (DCMS/Cabinet Office) (2002) Game Plan: A strategy for delivering Government’s sport and physical activity objectives Strategy Unit. Quoted by Anthony Vigor, Melissa Mean and Charlie Tims (Eds), 2004. After the Gold Rush: A sustainable Olympics for London. Demos/IPPR.

2. AJ Veal, 2003. Tracking Change: Leisure participation and policy in Australia, 1985-2002. Annals of Leisure Research vol 6, no.3, 245-277. Cited by Anthony Vigor, Melissa Mean and Charlie Tims (Eds), ibid.

3. Anthony Vigor,Melissa Mean and Charlie Tims (Eds), 2004. After the Gold Rush: A sustainable Olympics for London. Demos/IPPR.

4. London East Research Institute, University of East London, May 2007. A Lasting Legacy for London?: Assessing the legacy of the Olympic Games and Paralympic Games. The London Assembly.

http://www.london.gov.uk/assembly/reports/econsd/lasting-legacy-summary.pdf

5. Centre on Housing Rights and Evictions, 5th June 2007. Fair Play for Housing Rights: Mega-Events, Olympic Games and Housing Rights.

http://www.cohre.org/store/attachments/COHRE%27s%20Olympics%20Report.pdf

6. From interviews by COHRE, ibid.

7. Centre on Housing Rights and Evictions, ibid.

8. Simon Garfield, 8th April 2007. Manor from heaven. The Observer.

9. eg Jane Padgham, 11th August 2005. Olympic gold touch for East End homes. Evening Standard.

10. International Olympic Committee, May 2004. 2012 Candidature Procedure And Questionnaire. http://multimedia.olympic.org/pdf/en_report_810.pdf

Vague Law and Hard Lobbying Add Up to Billions for Big Oil

In my previous post, I mentioned that oil companies extract oil from publicly-owned land without paying any royalties -- that is, they get the oil for free, and then turn around and charge record prices while making record profits. The following is the original article where I read about this, from the New York Times.

Vague Law and Hard Lobbying Add Up to Billions for Big Oil
By EDMUND L. ANDREWS
March 27, 2006
New York Times

WASHINGTON, March 26 — It was after midnight and every lawmaker in the committee room wanted to go home, but there was still time to sweeten a deal encouraging oil and gas companies to drill in the Gulf of Mexico.

"There is no cost," declared Representative Joe L. Barton, a Texas Republican who was presiding over Congressional negotiations on the sprawling energy bill last July. An obscure provision on new drilling incentives was "so noncontroversial," he added, that senior House and Senate negotiators had not even discussed it.

Mr. Barton's claim had a long history. For more than a decade, lawmakers and administration officials, both Republicans and Democrats, have promised there would be no cost to taxpayers for a program allowing companies to avoid paying the government royalties on oil and gas produced in publicly owned waters in the Gulf.

But last month, the Bush administration confirmed that it expected the government to waive about $7 billion in royalties over the next five years, even though the industry incentive was expressly conceived of for times when energy prices were low. And that number could quadruple to more than $28 billion if a lawsuit filed last week challenging one of the program's remaining restrictions proves successful.

"The big lie about this whole program is that it doesn't cost anything," said Representative Edward J. Markey, a Massachusetts Democrat who tried to block its expansion last July. "Taxpayers are being asked to provide huge subsidies to oil companies to produce oil — it's like subsidizing a fish to swim."

How did a supposedly cost-free incentive become a multibillion-dollar break to an industry making record profits?

The answer is a familiar Washington story of special-interest politics at work: the people who pay the closest attention and make the fewest mistakes are those with the most profit at stake.

It is an account of legislators who passed a law riddled with ambiguities; of crucial errors by midlevel bureaucrats under President Bill Clinton; of $2 billion in inducements from the Bush administration, which was intent on promoting energy production; and of Republican lawmakers who wanted to do even more. At each turn, through shrewd lobbying and litigation, oil and gas companies ended up with bigger incentives than before.

Until last month, hardy anyone noticed — or even knew — the real costs. They were obscured in part by the long gap between the time incentives are offered and when new offshore wells start producing. But lawmakers shrouded the costs with rosy projections. And administration officials consistently declined to tally up the money they were forfeiting.

Most industry executives say that the royalty relief spurred drilling and exploration when prices were relatively low. But the industry is divided about whether it is appropriate to continue the incentives with prices at current levels. Michael Coney, a lawyer for Shell Oil, said, "Under the current environment, we don't need royalty relief."

The program's original architect said he was surprised by what had happened. "The one thing I can tell you is that this is not what we intended," said J. Bennett Johnston, a former Democratic senator from Louisiana who had pushed for the original incentives that Congress passed in 1995.

Mr. Johnston conceded that he was confused by his own law. "I got out the language a few days ago," he said in a recent interview. "I had it out just long enough to know that it's got a lot of very obscure language."

A Subsidy of Disputed Need

Things looked bleak for oil and gas companies in 1995, especially for those along the Gulf Coast.

Energy prices had been so low for so long that investment had dried up. With crude oil selling for about $16 a barrel, scores of wildcatters and small exploration companies had gone out of business. Few companies had any stomach for drilling in water thousands of feet deep, and industry leaders like Exxon and Royal Dutch Shell were increasingly focused on opportunities abroad.

"At the time, the Gulf of Mexico was like the Dead Sea," recalled John Northington, then an Energy Department policy adviser and now an industry lobbyist.

Senator Johnston, convinced that the Gulf's vast reservoirs and Louisiana's oil-based economy were being neglected, had argued for years that Congress should offer incentives for deep-water drilling and exploration.

"Failure to invest in the Gulf of Mexico is a lost opportunity for the U.S.," Mr. Johnston pleaded in a letter to other lawmakers. "Those dollars will not move into other domestic development, they will move to Asia, South America, the Middle East or the former Soviet Union."

Working closely with industry executives, he wrote legislation that would allow a company drilling in deep water to escape the standard 12 percent royalty on up to 87.5 million barrels of oil or its equivalent in natural gas. The coastal waters are mostly owned by the federal government, which leases tens of millions of acres in exchange for upfront fees and a share of sales, or royalties.

Mr. Johnston and other supporters argued that the incentives would actually generate money for the government by increasing production and prompting companies to bid higher prices for new leases.

"The provision will result in a minimum net benefit to the Treasury of $200 million by the year 2000," Mr. Johnston declared in November 1995, denouncing what he called "outrageous allegations" that the plan was a giveaway.

He won support from oil-state Democrats, Republicans and the Clinton administration. Hazel O'Leary, the energy secretary at the time, said the assistance would reduce American dependence on foreign oil and "enhance national security."

Representative Robert Livingston of Louisiana, then a rising Republican leader, declared that the inducements would "create thousands of jobs" and "reduce the deficit."

Many budget experts agree that the rosy estimates were misleading. The reason, they say, is that it often takes seven years before a new offshore field begins producing. As a result, almost all the costs of royalty relief would occur outside of Congress's five-year budget timeframe.

Opponents protested that the cost estimates were wrong, that the incentives amounted to corporate welfare and that companies did not need government incentives to invest.

"They are going to the Gulf of Mexico because that's where the oil is," said Representative George Miller, Democrat of California, during a House debate. "What we do here is not going to change that. We are just going to decide whether or not we are going to give away the taxpayers' dollars to a lot of oil companies that do not need it."

Industry executives and lobbyists fanned out across Capitol Hill to shore up support for the program, visiting 150 lawmakers in October 1995. The effort succeeded. A month later, Congress passed Mr. Johnston's bill.

A Missing Escape Clause

To hear lawmakers today, they never intended to waive royalties when energy prices were high.

The 1995 law, according to Republicans and Democrats alike, was supposed to include an escape clause: in any year when average spot prices for oil or gas climbed above certain threshold levels, companies would pay full royalties instead.

"Royalty relief is an effective tool for two things: keeping investment in America during times of super-low prices, and spurring American energy production when massive capital and technological risks would otherwise preclude it," said Representative Richard W. Pombo, Republican of California and chairman of the House Resources Committee. "Absent those criteria, I do not believe any relief should be granted."

But in what administration officials said appeared to have been a mistake, Clinton administration managers omitted the crucial escape clause in all offshore leases signed in 1998 and 1999.

At the time, with oil prices still below $20 a barrel, the mistake seemed harmless. But energy prices have been above the cutoff points since 2002, and Interior Department officials estimate that about one-sixth of production in the Gulf of Mexico is still exempt from royalties.

Walter Cruickshank, a senior official in both the Clinton and Bush administrations, told lawmakers last month that officials writing the lease contracts thought the price thresholds were spelled out in the new regulations, which were completed in 1998. But officials writing the regulations left those details out, preferring to set the precise rules at each new lease sale.

"It seems to have been a massive screw-up," said Mr. Northington, who was then in the Energy Department. No one noticed the error for two years, and no one informed Congress about it until last month.

Five years later, the costs of that lapse were compounded. A group of oil companies, led by Shell, defeated the Bush administration in court. The decision more than doubled the amount of oil and gas that companies could produce without paying royalties.

The case began as a relatively obscure dispute. Shell paid $3.8 million in 1997 for a Gulf lease and soon drilled a successful well. But the Interior Department denied the company royalty relief, saying that Shell had drilled into an older field already producing oil and gas. The decision hinged on undersea geography and the court's interpretation of language in the 1995 law.

A typical field, or geological reservoir, often encompasses two or three separately leased tracts of ocean floor. Interior Department officials insisted that the maximum amount of royalty-free oil and gas was based on each field. Shell and its partners argued that limit applied only to each lease.

Perhaps shrewdly, the oil companies sued the Bush administration in Louisiana, where federal courts previously had sided with the industry in spats with the government.

The fight was not even close. In January 2003, a federal district judge declared that the Interior Department's rules violated the 1995 law. If the department "disagrees with Congress's policy choices," Judge James T. Trimble Jr. wrote, "then such arguments are best addressed to Congress."

What might have been a $2 billion mistake in the Clinton administration suddenly ballooned into a $5 billion headache under Mr. Bush.

But even as the Bush administration was losing in court, it was offering new incentives for the energy industry.

Mr. Bush placed a top priority on expanding oil and gas production as soon as he took office in 2001. Vice President Dick Cheney's task force on energy, warning of a deepening shortfall in domestic energy production, urged the government to "explore opportunities for royalty reduction" and to open areas like the Arctic National Wildlife Refuge to drilling.

Gale A. Norton, who stepped down this month as interior secretary, moved quickly to speed up approvals of new drilling permits. Starting in 2001, she offered royalty incentives to shallow-water producers who drilled more than 15,000 feet below the sea bottom.

In January 2004, Ms. Norton made the incentives far more generous by raising the threshold prices. Her decision meant that deep-gas drillers were able to escape royalties in 2005, when prices spiked to record levels, and would probably escape them this year as well.

She also offered to sweeten less-generous contracts the drillers had signed before the regulation was approved.

"These incentives will help ensure we have a reliable supply of natural gas in the future," Ms. Norton proclaimed, predicting that American consumers would save "an estimated $570 million a year" in lower fuel prices.

Ms. Norton's decision was influenced by the industry. The Interior Department had originally proposed a cut-off price for royalty exemptions of $5 per million British thermal units, or B.T.U.'s, of gas. But the Independent Petroleum Association of America, which represents smaller producers, argued that the new incentive would have little value because natural gas prices were already above $5. Ms. Norton set the threshold at $9.34.

Based on administration assumptions about future production and prices, that change could cost the government about $1.9 billion in lost royalties.

"There is no cost rationale," said Shirley J. Neff, an economist at Columbia University and Senator Johnston's top legislative aide in drafting the 1995 royalty law. "It is astounding to me that the administration would so blatantly cave in to the industry's demands."

Incentives Keep Growing

Last April, President Bush himself expressed skepticism about giving new incentives to oil and gas drillers. "With oil at $50 a barrel," Mr. Bush remarked, "I don't think energy companies need taxpayer-funded incentives to explore."

But on Aug. 8, Mr. Bush signed a sweeping energy bill that contained $2.6 billion in new tax breaks for oil and gas drillers and a modest expansion of the 10-year-old "royalty relief" program. For the most part, the law locked in incentives that the Interior Department was already offering for another five years. But it included some embellishments, like an extra break on royalties for companies drilling in the deepest waters.

Lee Fuller, vice president of the Independent Petroleum Association of America, said smaller companies wanted to prevent future administrations from cutting back on incentives. "Having a clear, stable royalty policy was of value to independent producers," he said.

And energy companies, whose executives had long contributed campaign funds to Republican candidates, pushed to block any amendments aimed at diluting the benefits.

The push to lock in the royalty inducements came primarily from House Republicans. The only real opposition came from a handful of House Democrats, in a showdown about 1 a.m. on July 25, according to a transcript of the session.

"It is indefensible to be keeping these companies on the government dole when oil and gas prices are so high," charged Representative Markey of Massachusetts, who proposed to strip the royalty provisions. "We might as well be giving tax breaks to Donald Trump and Warren Buffett."

Mr. Barton, the Texas Republican, brushed aside the objections. He reassured lawmakers that the new provisions would not cost taxpayers anything.

When Mr. Markey proposed a more modest change — having Congress prohibit incentives if crude oil prices rose above $40 a barrel — Republicans quickly voted him down again.

"The only reason they waited until after midnight to bring up these issues is that they couldn't stand up in the light of day," Mr. Markey said in a recent interview. "They all expected me to give up because it was so late and I didn't have the votes. But if nothing else, I wanted to get these things on the record."

A Royalty-Free Future?

It is still not clear how much impact the reduced royalties had in encouraging deep-water drilling. While activity in the Gulf has increased since 1995, prices for oil and gas have more than quadrupled over the same period, providing a powerful motivation, experts say.

"It's hard to make a case for royalty relief, especially at these high prices," said Jack Overstreet, owner of an independent oil exploration company in Texas. "But the oil industry is like the farm lobby and will have its hand out at every opportunity."

The size of the subsidies will soar far higher if oil companies win their newest court battle.

In a lawsuit filed March 17, Kerr-McGee Exploration and Production argued that Congress never authorized the government to set price cut-offs for incentives on leases awarded from 1996 through 2000. If the company wins, the Interior Department recently estimated, about three-quarters of oil and gas produced in the Gulf of Mexico will be royalty-free for the next five years.

Mr. Markey and other Democrats recently introduced legislation that would pressure companies to pay full royalties when energy prices are high, regardless of what their leases allow.

But Republican lawmakers and the Bush administration have signaled their opposition.

"These are binding contracts that the government signed with companies," Ms. Norton recently remarked. "I don't think we can change them just because we don't like them."

Gas prices rise as oil companies take in record profits

Just as after Hurricane Katrina, gas prices rose and oil companies made record profits despite the fact that the Gulf Shore oil infrastructure escaped from the storm rather unscathed, again we have the oil company making record profits while gas prices reach record highs, with no discernable excuse. The World Socialist Web Site has a good article summarizing the "free market" of corporate capitalism at work. Also notable is the fact that a lot of this oil is extracted from federally owned offshore reserves without any royalties paid to the federal government. We give the oil away to Exxon and then allow them to make record profits selling it back to us.

Gas prices rise as oil companies take in record profits
By Mark Rainer
World Socialist Web Site
15 May 2007

The average price for a gallon of gas in the United States has surpassed the $3.00 mark and is currently at $3.07 per gallon. The sharp rise in gas prices has contributed to record high profits of the major oil companies.

Rising fuel prices have put an increased burden on working class families. The average American household is expected to spend $2,600 on gas this year, a significant jump from 2002 when gas expenses averaged $1,600.

According to the Energy Information Administration, the US Department of Energy’s statistical agency, the recent increase in gasoline prices has been due to a “rise in crude oil prices, persistent refinery outages, and seasonal demand growth.”

In fact, crude prices have been fluctuating in recent weeks, but are about at the same level they were one month ago. In the past week, they have actually declined significantly, even as gasoline prices have continued to escalate. Analysts are already predicting that the continued rise in demand will keep gas prices at least at their present levels throughout the summer—the peak driving season.

There have been indications of decreased refining capacity. Refinery outages and a decrease in imports have led to a sharp decline in gasoline inventories and are considered to be largely responsible for most of the recent increase in gasoline prices. Although gasoline inventories rose by 400,000 barrels last week, for the previous 12 weeks inventories were in decline, down a total of 15 percent since February.

Since the mid-1990s, due to a deliberate policy on the part of oil companies, US refineries have been operating near capacity. Outages like those that occurred in the wake of Hurricane Katrina in late 2005 have a large impact on gasoline inventories and have consequently driven up prices. Typically, refineries are shut down in the spring, usually justified on the grounds of regular maintenance and repairs. This spring has seen additional outages with a fire at a major refinery in Texas and other major supposedly unplanned outages.

Among the reasons given for the rise in gas prices, one of the more plausible is the most simple: price gouging. Direct manipulation of the energy market, including through the manufacturing of “unplanned” refinery outages, has precedents. During the 2000-2001 energy crises in California, Enron played a leading role in the rolling blackouts and the $5.7 billion in price hikes that afflicted California energy consumers. Enron’s manipulation of the Californian market included forcing power plants to shut down, price gouging, and over-scheduling the power supply.

In the run-up to the 2006 election, gasoline prices dropped an unprecedented 82 cents over a four-week period. Many Americans felt at the time that the sudden drop was related to the upcoming elections and the attempt to limit pessimism over the economy by temporarily reducing gas prices. This would presumably have had the effect of improving the chances of the Republicans in the elections.

The WSWS noted at the time: “Large energy companies certainly feel they have an interest in maintaining Republican control of the government. Not that they have anything serious to fear from the Democrats, but there are divisions within the ruling elite and no administration has been so closely tied, personally and financially, to the interests of the energy giants as the current one.”

The article concluded with the prediction, “Regardless of the exact forces behind the present decline in gasoline and oil prices, one can bet that by January or February prices will be back to their ‘normal’ exorbitant levels.” (See “US gasoline prices: the ‘free market’ and the November election” http://www.wsws.org/articles/2006/sep2006/gaso-s27.shtml)

As a result of a large number of mergers since the 1990s, 10 companies control 81 percent of the nation’s oil refineries. The nation’s top five oil companies—ExxonMobil, British Petroleum (BP), Royal Dutch Shell, Chevron and ConocoPhillips—own more than 40 percent of US refineries. With the absence of additional refining capacity and no government regulation on gasoline prices, there is ample opportunity to control gasoline prices.

The concentration of ownership of gasoline refineries is such that unplanned refinery outages at one or two corporations can have a significant effect. The Texas refinery that caught fire in February supplies the US with 15 percent of its gasoline.

Whatever the cause of the present increase in prices, there is no question that refineries are benefiting greatly as a consequence. On May 4, gross profit margins on gasoline refining rose 57 percent from the start of April to $31.22 a barrel. This is the second widest margin recorded in history, according to the New York Mercantile Exchange, and is double the margins from a year ago. The profits per barrel nearly surpassed the record set on September 1, 2005 in the aftermath of Hurricane Katrina, with a per barrel gross profit margin of $31.71 per barrel.

The profits of the major oil companies are presently at record levels. Of the five top oil companies all but BP show an increase in first quarter profits from the previous year. First quarter profits for ExxonMobil were $9.3 billion, up 10 percent from last year. Royal Dutch Shell reported $7.3 billion, up 6 percent; Chevron reported $4.7 billion, up 18 percent. ConocoPhillips reported $3.5 billion, up 8 percent from last year. Over the past six years the five top oil companies have taken in a staggering $440 billion in profits.

These profits are coming directly out of the pockets of the American population as a whole. Lacking alternatives in transportation, workers have had to accept the higher gas prices. According to the Labor Bureau of Statistics, transportation costs account for 18 percent of average household expenditures—the third largest component. From 2000 to 2005 average expenditures on gasoline and oil rose by 56 percent to $2,013 in 2005. As a percentage of total household expenditures the amount spent on gasoline and oil rose from 3.4 percent in 2000 to 4.3 percent in 2005.

The rising price of gas has already shown its impact on consumer spending. Forced to pay higher gasoline prices, workers have cut back on food, clothing, cars and other consumer goods. As a result, retail sales declined by 0.2 percent in April, the first decline in seven months.

The sharp rise in gasoline prices and the corresponding profiteering of the large oil corporations has led again to a series of symbolic measures and proposals from congressional Democrats. Everything from investigations into refinery outages, bans on price gouging, and windfall profit taxes has been suggested. This is largely for show, and the Democrats have no intention of seriously carrying through reforms that would alleviate the burden on working people from the rise in gas prices. Similar measures were proposed a year ago—and in the aftermath of Katrina—but were subsequently dropped.

For its part, the Bush administration has signaled that it will take no action on gas prices. In remarks yesterday at the White House, billed as a statement on oil prices and global warming, Bush made no mention of the rising gasoline prices. He proposed reducing gasoline consumption by 20 percent over the next 10 years through the increased use of biofuels and an increase in fuel efficiency. In other words, nothing will be done to help those hardest hit by rising gas prices.