oil law | ukwatch.net

Iraq's Oil Wealth on the Block

Ellie Keen — Sun, 13 Jul 2008 16:14:37 +0000

Last week saw the biggest step so far towards transferring Iraqi oil into the hands of foreign multinational companies, sparking renewed accusations that the US-UK war on Iraq was really motivated by an oil grab.

The Oil Ministry announced on 30 June that foreign oil companies would be invited to bid for contracts to develop six of Iraq’s largest oilfields, which together contain around half of the country’s known oil reserves.

Yet most commentators missed the significance of the move – that it would give away more to foreign companies than had been planned at any point since the Constitution was written in 2005, and possibly more than any major oil producer has given since the colonial era.

The contracts were (with one exception) for the second stage of development of the oilfields, to come after the one- or two-year no-bid contracts that the Ministry has been privately negotiating with Shell, BP, ExxonMobil, Chevron, Total and four smaller companies. The Ministry had also intended to sign those last week, but has delayed signing to some time this month.

To understand what’s at stake, we need to take a short diversion into some oil industry contract terminology. Last week’s announcement was of longer-term “risk service contracts” (RSCs), a kind of half-way house in the range of contract types.

The shorter (no-bid) contracts that would come first are known as “technical service contracts” (TSCs), where companies simply act as contractors to a government client who calls the shots, for a fixed fee – albeit with some strange features that I described in my last article for niqash.

These are contrasted with what the companies really want in Iraq – the dreaded “production sharing agreements” (PSAs), which would give them control over the fields, a large share of the oil extracted, and the potential for huge profits.

Last week’s RSCs are somewhere between TSCs and PSAs. It’s a model that has been used in Latin America, and is very similar to the “buyback contracts” used in Iran. The foreign company invests the capital (like in a PSA), but rather than getting a share of the oil, it gets a specified rate of return on its investment (say, 15%). And after a number of years, the oilfield reverts to national control. The government has not released the details of the contracts; but it appears they would be for either 7 or 9 years (in contrast to 22 years for a PSA or 1-2 years for a TSC)*.

The Oil Minister made much of the fact that he was not offering PSAs – to reassure Iraqis that they need not fear a great giveaway.

But that the contracts were not PSAs misses the point. All six of the fields – Rumaila, Kirkuk, West Qurna, Zubair, Maysan and Bai Hasan – are already producing oil, and actually together account for more than 90% of Iraq’s current production. As such, their investment and technology needs are relatively minor, and could easily be provided within the public sector, as they have been for more than 30 years.

Ever since the Constitution was written in 2005, Iraqi oil policy has been that fields already producing oil would stay in Iraqi hands – and that only for new, undeveloped fields would development contracts be offered to foreign companies. Even the draft Oil Law – which has been so controversial for giving away too much – required that fields already producing oil would be “managed and operated” by the Iraq National Oil Company (INOC).

That policy was reversed last week – giving the “backbone of Iraq’s oil production” (in the Minister’s own words) also to foreign companies – fields that were never going to be on offer in any form. It remains to be seen what happens to new fields.

The positive portrayal of a negative step was repeated when the Minister also emphasised that companies would have to “give” at least a 25% stake in each project to INOC. But this was never the companies’ to give – in fact, the true implication of the announcement is that they may take 75% away from INOC.

Even for new fields, a 25% INOC stake would have been derisory. Libya, for instance, requires a public stake of around 80% for new exploration contracts (and for much smaller fields than Iraq’s). Nigeria, which is seen as one of the OPEC members most friendly to western companies, requires that the Nigeria National Petroleum Company take a 55% stake in onshore projects.

It was in the 1950s, as the colonial era was coming to a close, that a minimum of 51% became the norm in major oil producers. Now Iraq appears to be stepping back to the age of subjugation to the interests of foreign powers. Hardly the progressive move the Minister claimed.

For the most part, the international media were willing to accept the spin about how Iraq would get a great deal – some reports even celebrated how the companies were charitably “helping” Iraq rebuild its oil sector. The coverage clearly signified how far the Iraqi oil debate has been twisted over the last five years.

Iraqi oil policy and mainstream discussion of it have rested on two assumptions: that Iraq’s oil can only be effectively developed by the western oil majors, and that the contracts offered have to provide for the companies’ needs (or sometimes the oil market’s needs) first and foremost. Consistently absent has been any conception of what is in the best interests of the Iraqi people.

The big question is why the Oil Ministry would want to bring in the multinationals for these fields. The Ministry is not short of cash: in fact, it has been consistently unable to spend the funds provided to it, so is now sitting on billions of dollars that could be invested in the fields. And technology can easily be purchased, whilst Iraqis maintained the management of the fields.

The true explanation seems almost too obvious for most commentators to spot. One radio interviewer asked me “Why shouldn’t the Iraqi government sign these contracts if it wants to? – it’s not as if someone’s holding a gun to their head”.

In fact, that is exactly what is being held to Iraqis’ heads. Or more precisely, over 150,000 guns.

The Iraqi government owes its very existence to the foreign troops that remain in the country. And with the occupiers playing a greater role than the Iraqi electorate in whether the government stands or falls, it is inevitable that the government will respond more to the views of the former.

Last week, the New York Times revealed that US advisers had helped shape the new contracts. The State Department responded that its advice was purely technical, and gave the example of helping draft arbitration clauses. Those clauses, which determine how the contracts will be adjudicated outside the country by secretive investment courts, would probably be seen by most Iraqis as rather more than a technical issue. But for the USA, for multinational companies to run the industry is simply a natural way of doing things.

State Department spokesman Tom Casey added that the US role is similar to that of a lawyer helping a client draw up a will. It was an apt analogy. The USA sees Iraq’s economy as in its dying throes, and is helping the Iraqi government decide how much of its estate to bequeath to BP, Shell or Exxon.

But all is not yet lost for advocates of Iraqi sovereignty over its oil. Companies are not to bid for the contracts until next March, and signing is not expected until summer 2009 – giving plenty of time for the policy to change. During this time, the political landscape will alter significantly following the departure of the Bush/Cheney administration.

And the so-far successful Iraqi campaign against oil privatisation continues to make progress. According to press reports, the Oil Minister has finally agreed to open the technical service contracts to parliamentary scrutiny before they are signed. This is a welcome move, although it needs to be extended: all Iraqis should have a right to know what is being done to their natural resources.

For the US administration, it might seem like a dangerously radical idea to let Iraqis decide the future of their oil. But with Cheney and Bush on their way out, there may even be a prospect that the idea will take hold.

———

The Kurdistan Regional Government released details of the federal government’s model exploration and development contract, which included up to 7 years of exploration, 2 years of appraisal, 5 years of development and 2 years of transfer of the field back to the government. The six fields announced last week were for development only – so we are assuming the same duration, minus the exploration period. Similarly, the draft oil law provides for up to 8 years of exploration, followed by 2 years of appraisal and 20 years of development and production.

A Classic Colonial Status

Ellie Keen — Wed, 25 Jun 2008 23:42:52 +0000

Whatever the Iraq war was about, we were assured, it definitely wasn’t about oil. Tony Blair called the idea a “conspiracy theory”. It was about democracy and dictatorship, weapons of mass destruction and human rights, anything but oil. Donald Rumsfeld, then US defence secretary, insisted the conflict had “literally nothing to do with oil”. When Alan Greenspan, former chairman of the US Federal Reserve, wrote last autumn, “Everyone knows: the Iraq war is largely about oil,” he was treated as if he were some senile old gent who’d embarrassingly lost the plot.

That argument is going to be a good deal harder to make from next week, when four of the western world’s largest oil corporations are due to sign contracts for the renewed exploitation of Iraq’s vast reserves. Initially, these are to be two-year deals to boost production in Iraq’s largest oilfields. But not only did the four energy giants – BP, Exxon Mobil, Shell and Total – write their own contracts with the Iraqi government, an unheard-of practice: they have also reportedly secured rights of first refusal on the far more lucrative 30-year production contracts expected once a new US-sponsored oil law is passed, allowing a wholesale western takeover. Big Oil is back with a vengeance.

It’s a similar story when it comes to the future of the US occupation itself. The last thing on anyone’s mind, we were told when the tanks rolled in, was permanent US control, let alone the recolonisation of Iraq. This was about the Iraqis finally getting a chance to run their own affairs in freedom. But five years on, George Bush and Dick Cheney are putting the screws on their Green Zone government to sign a secret deal for indefinite military occupation, which would effectively reduce Iraq to a long-term vassal state.

In April, I was leaked a draft copy of this “strategic framework agreement”, intended to replace the existing UN mandate at the end of the year. Details of the document, which came from a source at the heart of the Iraqi government, were published in the Guardian – including indefinite authorisation for the US to “conduct military operations in Iraq and to detain individuals when necessary for imperative reasons of security”. Since then, much more has emerged about the accompanying “status of forces agreement” the US administration wants to impose: including more than 50 US military bases, full control of Iraqi airspace, legal immunity for US military and private security firms, and the right to conduct armed operations throughout the country without consulting the Iraqi government.

This goes far beyond other such agreements the US has around the world and would shackle Iraq with a permanent puppet status. Not surprisingly, it has led to uproar in the country and opposition in the US, where congress will be denied a vote on the arrangement because the administration has chosen not to call it a treaty.

But it also evokes powerful memories in Iraq, which has been down this road before. After Britain invaded and occupied Iraq during the first world war, it imposed a strikingly similar treaty on its puppet government in 1930 in preparation for the country’s nominal independence. Just as in George Bush’s version, Britain awarded itself military bases, the right to conduct military operations, and legal immunity for its forces – though the proposed new US powers and restrictions on Iraqi sovereignty go even further than in the pre-war colonial treaty.

To add to this sense of imperial revival, the four oil companies now preparing to return in triumph to Iraq were the original partners in the Iraq Petroleum Company, which Britain gave a free hand in the 1920s to dine off Iraq’s wealth in a famously exploitative deal. The Anglo-Iraqi treaty and those bitterly unjust oil concessions dominated Iraqi politics for decades, feeding riots, uprisings and coups until the monarchy was overthrown, the tables turned on the oil companies and the British were finally sent packing by the radical nationalist General Qasim in 1958.

The 50th anniversary of the 1958 revolution appropriately falls next month. But Bush and Cheney seem increasingly determined to force through both their security agreement and the stalled law for the privatisation of Iraq’s oil industry before the US election. The signs are that, despite intense Iraqi opposition, a combination of strong-arm tactics, bribery and some watering down of the most extreme US demands may yet secure the full imperial package.

When Bush contradicted Iraqi prime minister Nouri al-Maliki earlier this month on the occupation deal and predicted: “If I were a betting man, we’ll reach an agreement with the Iraqis,” he sounded as if he knew what he was talking about – rather as he did when he explained a couple of weeks ago that he was “confident” Gordon Brown would not after all be cutting British troop numbers in Basra according to any fixed timetable. Meanwhile, Iraq’s foreign minister, Hoshyar Zebari, is suddenly sounding similarly confident about “progress” on the oil law because “the Americans are very keen”.

Perhaps they are all coming to believe the Bush administration propaganda that the surge has succeeded and Iraq is starting to “fix itself” in time for the US election, as the Economist’s cover story put it last week. Much is still being made of the decline in US casualties and resistance attacks to 2004 levels, even though the factors behind that drop are widely acknowledged to be contingent and precarious. Given the carnage of the past few days alone – including seven US soldiers killed since the weekend and a Baghdad car bomb that butchered 65 people – as well as this week’s withering US Government Accountability Office report on the administration’s claims of “progress” in Iraq, any other view would seem perverse.

What is certain is that, if Bush’s blueprint for indefinite foreign rule in Iraq and the takeover of its oil is forced down the throats of the Iraqi people, resistance and bloodshed will increase. Of course, it’s true that the US and Britain didn’t invade Iraq only for its oil. It was a projection of American power in the world’s most strategically sensitive region, with oil at its heart, which has brought catastrophe to Iraq and great danger to the Middle East and the wider world. That’s why the struggle to restore Iraq’s independence matters far beyond its borders – it is a global necessity.