The Smart Money

Paul Krugman makes a good point about the Hunt Oil deal with the Kurdistan Regional Government that scuttled efforts at a forging a compromise oil law in the Iraqi parliament:

No, what’s interesting about this deal is the fact that Mr. Hunt, thanks to his policy position, is presumably as well-informed about the actual state of affairs in Iraq as anyone in the business world can be. By putting his money into a deal with the Kurds, despite Baghdad’s disapproval, he’s essentially betting that the Iraqi government — which hasn’t met a single one of the major benchmarks Mr. Bush laid out in January — won’t get its act together. Indeed, he’s effectively betting against the survival of Iraq as a nation in any meaningful sense of the term.

Hunt's policy position, in this case, would be his role on the Foreign Intelligence Advisory Board. And, indeed, FIAB aside, it's oil company executives who really have strong incentives to acquire rigorous intelligence about political developments in the Persian Gulf untainted by wishful thinking or political considerations. If Hunt Oil thinks the Iraqi state will be dysfunctional long enough to make it worth signing not-really-legal-in-Iraq teals with the Kurdistan government, then there's reason to think they know what they're talking about.

Photo by Flickr user Anthea used under a Creative Commons license

Comments

Why is Hunt signing ducks and why are they not quite legal?

Posted by Dark Cyan | September 14, 2007 4:46 PM

More importantly ... what does it take for a duck to be legal in Iraq?

Posted by agent zero | September 14, 2007 5:34 PM

Krugman is exactly right. I think this means that the powers that be have already decided that some form of soft partition, under the guise of "federalism" (see Crocker, Ryan; testimony of), is the end game. My guess is that we are going to cut the Shiites in Iraq loose, put our money behind the Sunnis (making the Saudis and our other Sunni allies VERY happy), and start a proxy war with Iran for control over southern Iraq. After all, the Sunni's have no oil, and they aren't going to take the Kurd's.

This shit is going to get really ugly really soon.

Posted by CKT | September 14, 2007 5:51 PM

The only thing a little off in the column is the implication that somehow Ray Hunt is off on his own making side bets about the future of Iraq. This really couldn't have happened without the tacit or explicit approval of the U.S. government. Could you imagine for instance Total or BP or CNOCC getting this deal?

This is the end game, with permanent bases in Iraq to protect these vital American interests and property rights.

Why do you think the oil law was such a high priority? The government in Iraq that the U.S. government will support will be the one that gives the deal to American friends. If that government was a pluralistic democracy, great, but that was never essential. Any government will do so long as our military remains there to protect the newly granted american property rights.

Posted by Doug | September 14, 2007 6:56 PM

Matt, I don't disagree with a single thing you said.

However, here's what I don't understand:

"it's oil company executives who really have strong incentives to acquire rigorous intelligence about political developments in the Persian Gulf untainted by wishful thinking or political considerations."

Dick Cheney (who, it should be noted, pace JMM's magisterial Cheney-the-perpetual-foreign-policy-fuckup piece in the WaMo, has always been wrong about every foreign policy judgment he's ever made), was an oil-services company executive in the '90s.

So, did Dick fail even his corporate gig -- or did he have adequate and complete intel in the '90s re: Saddam and the subsumed factionalism of Iraq, and he just didn't care?

Posted by The Confidence Man | September 14, 2007 8:52 PM

Possibly relevant: This new paper by Michael Greenstone of MIT.

Abstract:
There is a paucity of facts about the effects of the recent military Surge on conditions in Iraq and whether it is paving the way for a stable Iraq. Selective, anecdotal and incomplete analyses abound. [snip]

There is, however, another way to assess the Surge. This paper shows how data from world financial markets can be used to shed light on the central question of whether the Surge has increased or diminished the prospect of today's Iraq surviving into the future. In particular, I examine the price of Iraqi state bonds, which the Iraqi government is currently servicing, on world financial markets. After the Surge, there is a sharp decline in the price of those bonds, relative to alternative bonds. The decline signaled a 40% increase in the market's expectation that Iraq will default. This finding suggests that to date the Surge is failing to pave the way toward a stable Iraq and may in fact be undermining it.

For the full text, visit the Social Science Research Network and search under Greenstone's name.

Posted by teething ring | September 14, 2007 9:14 PM

"did he have adequate and complete intel in the '90s re: Saddam and the subsumed factionalism of Iraq, and he just didn't care?"

The latter.

Where in this has Dick Cheney failed in anything?

Just because Iraq is a mess and no oil is flowing?

His oil cronies control the oil. That's the point of the Hunt deal.

More importantly, if Greg Palast is correct, the deal at all times was twofold:

1) Take the oil OFF the market initially because Saddam was meddling with the oil prices. This alone jacks up prices and makes it worth doing - not to mention the impact on prices of there being a war at all.

2) Take control of the oil for exploitation later when (and if) the opportunity arises - as it probably will depending how things go in the future.

Somebody is going to want to sell the oil to the world sooner or later - the Kurds for sure, and probably whatever government does arise in Iraq some day. At that point, the oil companies will be needed since the existing oil infrastructure is dead as a doornail without external help.

Especially if they can take Iran's oil as well, which was the plan all along - Iraq first, then Iran.

You only assume Cheney was wrong because his policies screw either the US, the US citizen, or somebody else.

It never screwed him or the oil companies, did it?

And even if it did, that doesn't matter. When he MADE the policy, he didn't think it would.

The oil companies have always had the best intelligence in the Middle East - everybody knows that. But that doesn't mean they're always right about the consequences of a given policy, does it? All people with vested interests have a myopia about elements of any situation where it directly threatens their interest. It's just that their myopia isn't necessarily myopic in other areas where the average sucker citizen is ignorant.

Posted by Richard Steven Hack | September 15, 2007 12:18 AM

What is/where is Impulse Energy Corporation, the company named as co-investor with Hunt Oil? After diligent googling, all I come up with is:

Impulse Energy Corporation is a private company that invests in the energy sector in developing economies targeting oil, gas and power.

But, I can’t find news of the company investing in anything but this deal. Is this odd?

Posted by PeterE | September 15, 2007 1:35 AM

I'm afraid that this is less about efficient markets and more about market manipulation. Rather than betting on information out of his control, Hunt may be trying to break the monopoly on supply that a national unity government might have.

Matt suggests that the Hunt-KRG deal is at least partially responsible for the blocking of a national oil law, which would have been a major success of the central government if passed.

And there's no question that it's easier to protect American (Hunt) property against one or two small, weak states than against one large, unified state.

So rather than evidence that Iraq is hopeless, could this be evidence that we are actually achieving our goals in Iraq?

Posted by Sean | September 15, 2007 1:39 AM

Think of Ahmadinehadad as pre-WW II Hitler
and Barzani as hapless Benito Mussolini. Every move made by Mussolini - from invading Ethiopia, Greece, Albania and other moves of lesser import--created diffilties for Hitler, who had to bail Musso out. In short, Musso, was a loss for Hiltler,espcially on the Russian front, at Stalingrad.

In the same way Barzani--who equals Musso. with his maps of a Greater Kurdistan -- will be a giantic liability for Ahmainejad. What we are seeing is a coatition of nazi-fascist wannabees, especially when Hugo Chavez is thrown in. Their
countepart PM Abe just self-destructed in Japan. Barzani, Chavez and Ahmadinejad will do the same.

Posted by scott sullivan | September 15, 2007 1:48 AM

"After the Surge, there is a sharp decline in the price of those bonds, relative to alternative bonds."

This is the kind of trenchant analysis conducted at MIT these days? Is this genius aware of something else that's been happening over the last few months -- the credit crunch and resulting flight to quality?

Posted by Juan | September 15, 2007 2:32 AM

If Hunt is so smart, how does he plan to get the oil out? Or is he making a simultaneous bet against the survival of the Turkish state?

Posted by Dave L | September 15, 2007 7:03 AM

I agree with Juan. That Greenstone paper seems like total nonsense. Does the guy even follow the financial markets? (That is my job.) Credit spreads generally have widened sharply. Is Greenstone claiming that the surge has also damaged the prospects for BBB bonds backed by United States commercial real estate? Because they show the same price path as the Iraqi bonds he cites.

Posted by y81 | September 15, 2007 9:02 AM