For the first time since 1972, foreign companies may be allowed to have a huge stake in Iraq's oil wealth.
IN the last week of February, Iraq's "council of ministers" approved a new petroleum law that seeks virtually to hand the bulk of the country's energy assets back to Western multinationals. For the first time since 1972, foreign companies will once again be allowed to have a huge stake in Iraq's bountiful oil wealth. The law is expected to be approved by the Iraqi Parliament in March. Iraqis as well as oil experts are of the view that the new hydrocarbon law, if implemented, will be a reward for the George W. Bush administration even as the United States faces military defeat in Iraq.
Iraq has one of the world's largest untapped reserves of oil and gas, estimated at 115 billion barrels and 110 trillion cubic feet respectively. Now they will be the Western oil companies for the asking. From the Bush administration's point of view, all the blood spilt for oil has not been wasted. The U.S. President was quick to welcome the law.
Only 40 billion of the 115 billion barrels of Iraq's known reserves are currently in production. The new law allocates to foreign companies 64 per cent of Iraq's known reserves. If a further 200 million barrels are found, as many experts have suggested is possible, then foreign companies will control 87 per cent of the production of Iraqi oil. U.S. Vice-President Dick Cheney had said in 1999, when he was still the chief executive officer of Halliburton, that West Asia had two-thirds of the world's oil and it could be extracted at the lowest cost. The per barrel extracting cost of Iraqi oil is among the lowest in the world.
As an American commentator noted, Bush can claim victory in Iraq if the new oil law is passed. During the 2006 mid-term elections, Bush, who was on the campaign trail, had asserted that oil was the reason why the U.S. should stay in Iraq. He repeatedly emphasised that if the U.S. withdrew then the country's considerable oil assets would be controlled by "extremists and radicals", who would use "energy as economic blackmail" and try to pressure the U.S. to abandon its alliance with Israel.
The new law gives foreign oil companies access to all the sectors of the Iraqi oil and natural gas industry. These will include new contracts even in existing oilfields run by Iraq's national oil company, INOC. In the case of oilfields that have already been discovered, the proposed law will allow Western companies to be partners. For yet-undiscovered oilfields, Western oil companies need not involve either Iraqi companies. Foreign companies are not required to hire Iraqi workers or transfer technology. The law proposes to set up an Iraqi Federal Oil and Gas Council, which, in theory, would be responsible for deciding on the contracts to be handed out.
The Council will include executive managers from "important related companies". This means the presence of representatives from Western companies such as Chevron and ExxonMobil on a key decision-making body. The Council would also decide the fate of contracts signed by the previous government with countries such as Russia, China and India. Oil and Natural Gas Corporation-Videsh had signed important agreements with Iraq before the U.S.-led invasion.
The new law also does not specify who will have the final say on the control of production levels. Critics of the deal point out that if foreign companies are allowed to have the final say then Iraq's membership of the Organisation of the Petroleum Exporting Countries (OPEC) cartel will become academic. A Jordanian analyst, Ali Hussein Bakeer, is of the view that the U.S. has "strategic targets" in controlling Iraqi oil. According to Bakeer, the U.S. will use it as a card against rising Asian powers such as China and India. The second target is to secure Israel's oil needs. Senior Israeli politicians have been boasting since 2003 that Iraqi oil will be flowing through its Jaffa pipeline sooner than later.
Among the most contentious aspects of the law is the right of "regional" governments to sign separate deals with the oil companies. Under the law, companies can deal with both the Central Ministry of Oil and the regional governments. This would mean that the Shias in the south, the Sunnis concentrated in the middle belt and the Kurds in the north, can do their own deals with Western oil companies. As of now, only the Kurds run a regional government. Most of Iraq's oil and gas is located in the south and the north. The already disgruntled Sunnis have now even more reasons to be alienated.
Many Iraqi politicians and commentators say that the proposed law is based on sectarianism and is a blueprint for the de jure partition of the country into three parts. Under the law, oil wealth will be directly distributed to the Kurds, the Shias and the Sunnis. The details of the draft were kept a secret so far and there was very little public debate on the subject until recently. The approval of the draft by the 275-member Iraqi Parliament is considered a mere formality.
The real authors of the law, according to most commentators, are top officials of the Bush administration, representatives of Big Oil and Western financial institutions led by the World Bank under Paul Wolfowitz. Wolfowitz, a leading neo-conservative, was Deputy Secretary of Defence when Bush ordered the invasion of Iraq.
Trade unions and many political parties have protested against the new oil deal the government has signed with the West. The powerful young Shia cleric and resistance leader Moqtada al-Sadr has strongly criticised the move. Members of Parliament belonging to his bloc have said that no agreements should be signed with Western oil companies as long as Iraq is under U.S. occupation. They have stated that the move is a ploy to give the Western companies a permanent foothold in Iraq even after the occupation troops have left.
Hassan al-Asadi, the head of Iraq's Federation of Oil Unions, said that all the oil workers were united against the proposed law and called for its replacement by a "new, different law, which would be in the interests of Iraqis". He warned the Western oil companies against coming into Iraq "under the guise of production-sharing arrangements". Iraqi oil workers, despite overwhelming odds, have kept the oil industry running since the 1980s. Iraq fought three wars, lived under draconian sanctions and is currently in a state of civil war.
Iraq was among the first countries to introduce laws nationalising oil. One of the first of these laws Law no.80 of December 1961, which recovered 99.5 per cent of Iraqi oil not in production from the control of Western companies, was a trendsetter.
Iranian Prime Minister Muhammed Mossadegh was overthrown by a U.S.-backed coup when he tried to do something similar with Iran's oil assets in the mid-1950s. Iraqi President General Abdel Karim Kassem, responsible for the 1961 law, was assassinated in 1963 in a U.S.-financed coup. However, the West could not undo Kassem's nationalistic reforms.
Under Saddam Hussein, the Iraqi government passed even tougher nationalisation laws in 1972 and 1973, covering the remaining 0.5 per cent containing the producing fields, thus sidelining the Western oil conglomerates completely. The new petroleum law, however, is reminiscent of the contracts signed by the British-installed Iraqi monarch, King Faisal, before 1950. Those colonial contracts with Western oil companies were for a period of 75 years and non-negotiable.
With the recent moves, the U.S. seem to have succeeded in making the Iraqi government buck a worldwide trend. Venezuela announced recently that it was taking control of its assets in the profitable Orinoco basin, giving the option of only a minority stake for Western multinationals. Only in Iraq, the state seems to have conceded the role of a major partner in profit-sharing agreements to the big oil companies. Oil experts are of the view that Iraq's 10-year plan to develop its oil production, can be comfortably financed out of the country's own revenues. They have observed that by inviting Western oil companies, there will be significant loss of revenue. One study noted that even if the oil profits are split 80-20 with foreign companies, the Iraqi state would lose 10 per cent of its total revenue.
The terms being envisaged under the new oil law is much more generous. Its ramifications will be dangerous for the long-suffering Iraqi people and the unity of the country.