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4 The door
to Iraq's oil opens By M K
Bhadrakumar
March 2003; some 60 attacks on
refineries; and over 500 attacks on tanker trucks.
Close to 650 Iraqi oil workers might have been
killed or wounded or kidnapped. Iraq's dual
pipelines in the north heading toward Turkey were
a major target of attack. The improving security
situation has been a factor in increasing Iraq's
oil production to nearly 2.4 mn bpd by end-2007,
which is the highest level since the US invasion.
Oil production is now expected to cross
the pre-war level of 2.6 million barrels by
end-2008. Shahristani told The Times that he
expected production to reach 6 million barrels per
day within the
next
four years. The International Monetary Fund has
predicted that Iraq's economy, boosted by the
increase in oil revenues, is slated to grow by 7%
this year as compared to 1.3% last year. The Times
newspaper recently reported that the real estate
market has been sharply picking up in parts of
Baghdad city and there are visible signs of a
construction boom
As can be expected,
Washington is keen to exploit the vastly improved
security situation in Iraq. The Bush
administration is leaning on Shahristani not to
wait for the fractious Iraqi Parliament to approve
the Iraqi oil law that would have provided a legal
framework for foreign investment in the oil
industry. As the first step, the executives of
some of the world's oil majors have been meeting
with Iraqi Oil Ministry officials since January 24
in Amman, Jordan, for discussing the terms of
technical support contracts, which are in the
nature of shorter-term deals.
Shahristani
told Argus Media recently that these service
contracts will "help Iraq fast-track the purchase
of necessary equipment and train the Iraqi people
to install them". He said these companies would be
favored in a bidding round for longer-term
contracts on the Iraqi oil fields set for later
this year. Another bidding round is expected to
take place next year.
The Times of London
reported that ExxonMobil, Chevron, ConocoPhillips
and Shell have been targeted by the Iraqi Oil
Ministry for awarding the service contracts (known
as "technical support agreements" or TSAs). The
report said that in exchange for the oil, these
four oil companies would direct training of Iraqi
workers and equipment to Iraq's largest oil and
gas fields. The Middle East Economic Survey has
quoted Shahristani as saying that the service
contracts will be signed "within a few weeks". The
general expectation is that the TSAs will be
signed during the third round of discussions due
in March.
Meanwhile, the Iraqi Oil
Ministry's deadline for any interested oil firms
to pre-register for the larger contracts to
develop oil fields falls on February 18.
Shahristani has promised an open bidding and
transparent process but only in the event that he
will be the decision-making authority. He
suggested that competition would be intense.
"Everybody in the world, more than 45 companies,
have approached us [the Iraqi government] and
shown a very keen interest in working with us -
the Chinese, Russians, Indians, Brazilians,"
Shahristani said.
In sum, as Ben Lando,
United Press International's energy editor put it,
"Big Oil's big dreams are close to coming true ...
According to insiders, Shell, which produced a
technical study of Kirkuk in 2005, wants a deal
for the field. BP wants one for Rumaila, which it
studied last year. Shell and BHP Billiton are
angling for the Missan field in the south.
ExxonMobil is interested in the southern Zubair
field while the Sabha and Luhais fields are being
targeted by Dome and Anadarko Petroleum.
ConocoPhillips is talking with the [Iraqi]
ministry about the West Qurna oil field ...
Chevron and Total have teamed up in a bid for the
Majnoon field."
No doubt, it is pay-off
time for the four majors who didn't make an issue
of the US military occupation of Iraq or the
ensuing mess-ups during Paul Bremer's rule or the
ensuing acute security situation, but kept going
with their nose on the ground and worked with the
Iraqi ministry during the past four years in
conducting reservoir surveys, assisting in the
drawing up of work plans and in training
personnel. These oil majors simply chose to be
around in Baghdad even when much of the oil
industry was idling. Lando adds, "While service
contracts would be highly profitable for
companies, Big Oil wants risk contracts. Such
deals are usually long term, covering its
exploration costs and guaranteeing a profit if oil
is found, and allowing them to put the reserves it
discovers on the books, a boon in Wall Street's
eyes."
Iraqi public
opposition Of course, Shahristani is
skating on thin ice. His moves, despite the robust
backing by the Bush administration, are political
and highly controversial. The point is,
Shahristani is virtually in a position to hand out
jackpots to the oil majors. Everyone knows that
apart from the security factor, the risk in
exploring for crude in Iraq is virtually nil.
"Historically it [oil] has been easy to find,
inexpensive to produce and top quality", Lando
points out.
Washington counts on
Shahristani to push the oil deals through despite
the vehement opposition within Iraq. First, about
70% of Iraqis firmly oppose what Shahristani is
attempting. The Iraqis see what is happening as a
capitulation of their national sovereignty. Iraqis
look back at the nationalization of their oil
industry in 1972 as a source of pride and
empowerment. Second, there is vehement opposition
from the labor unions in the Iraqi oil industry.
They say that Iraq could increase its oil
production by investing its own money and there is
no pressing need at this juncture to solicit
foreign investment.
Indeed, in 2006, the
Iraqi Oil Ministry could only utilize 3% of its
$3.5 billion reconstruction budget. The US Defense
Department in a December 2007 report acknowledged,
"The lack of capacity in contracting, the lack of
trained budget personnel, concern about corruption
and numerous other systemic structural impediments
hamper faster execution."
Iraq's oil
exports in 2007 brought in $35.5 billion,
according to the US State Department. But a study
by the Washington Times newspaper in January
concluded, "Increased oil revenues stemming from
high prices and improved security are piling up in
the Federal Reserve Bank of New York rather than
being spent on needed reconstruction projects."
To be sure, the Iraqi labor unions have a
point when they say that foreign investment is not
the real need for the oil industry currently, but
rather the ability to invest the surplus budget.
Again, the labor unions are questioning the need
of foreign expertise. They insist that national
expertise is available within Iraq. The fact
remains that in spite of Saddam's gross
mismanagement of the oil industry, Iraq had built
up over the years a significant reservoir of
manpower with a range of technical expertise.
"If they [Oil Ministry] are prepared to
allocate more funding and spend the resources that
already exist, there would be improvement and we
could recruit more workers," Hassan Jumaa Awad,
president of the umbrella Iraqi Federation of Oil
Unions recently told the United Press
International news agency. Awad alleged that
Shahristani is following a "deliberate" policy of
shunning domestic investment with a view to make
Iraqi oil workers look incapable.
The
labor unions have now sought the help of the
international labor community to their demands,
which also question Shahristani's intentions in
awarding to international oil firms concession or
risk contracts such as production-sharing
agreements. Awad calls for an Iraqi oil law, "but
we need to gain our full sovereignty before such a
law is enacted", and he insists that if a law is
to be passed, it should be approved by Iraqi
voters in a referendum.
Iraq's oil unions
and civil society organizations have joined hands
in alleging that Washington and the present
authorities in Baghdad, especially the Oil
Ministry, are conspiring to hand over control over
Iraq's oil to oil majors. The news agencies
reported that protesters who fear that Iraq's oil
wealth might be squandered met at a Middle East
oil conference on February 5 in London where Iraqi
and British oil industry leaders attended.
Bush's Iraq legacy But the Bush
administration's priorities lie elsewhere. It is
highly unlikely to pay heed to Iraqi public
sentiments. There is precious little time left for
the Bush administration in the White House. But
it's not just pork-barrel politics, either. There
is also the aspect of the legacy of the Bush
administration. With the Iraqi "surge" having
proved a success, Bush is undoubtedly gearing up
for the epitaph to his Iraq odyssey.
Big
Oil deals in Iraq form the core of Bush's strategy
of creating a legacy for the US in the Middle East
that may run for decades. Big Oil needs the
assurance of a near-permanent US military presence
in Iraq. And Bush is determined to provide that
assurance. He is convinced that no serious
American politician would defy the wishes of Big
Oil. By logic, therefore, Bush is creating a
historical legacy of an Iraq that will remain
under American control for decades to come.
Therefore, the Op-Ed in The Washington
Post on Wednesday jointly authored by Secretary of
State Condoleezza Rice and Secretary of Defense
Robert Gates is extraordinary for its thumb sketch
of what Bush's Iraq legacy is going to look like.
The two top officials have written that a "crucial
phase" is about to begin with the US negotiating a
basic framework agreement with the Iraqi
government aimed at "normalized relations".
By the end of this year, the Bush
administration proposes to altogether dispense
with the fig leaf of the current requirement that
the United Nations must authorize on an annual
basis the presence and role of the US military in
Iraq under the relevant UN resolutions. Rice and
Gates argue that the Bush administration "would
rather have an arrangement that is more in line
with what typically governs the relationships
between two sovereign nations". Period.
The US-Iraqi framework agreement to be
negotiated seeks to establish "a strong
relationship with Iraq, reflecting our [US] shared
political, economic, cultural and security
interests". In other words, Washington will have
ensured that US policies in Iraq are sequestered
from the purview of the UN once the US-Iraqi
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