Cracking the Contracts

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In January 2003 Middle Eastern Peace Envoy Tony Blair, then Prime Minister, was planning a war. The media meanwhile debated imaginary threats and UN Resolutions; for the most part respecting the taboo that the planned invasion might have something to do with oil. When, nevertheless, Blair was confronted with that suggestion at Prime Minister’s Question Time he decided to, as he put it, ‘deal with the conspiracy theory’. If oil were the motive he reasoned, it would be ‘infinitely simpler to cut a deal with Saddam’ who he said, ‘would be delighted to give us access’. And he was right. But the war was never about buying Iraq’s oil; it was about selling it.

Five years later the big oil corporations are still waiting for Iraq’s oil fields to open for business. Violence and instability have been one obstacle, but not the main one. After all, oil corporations often operate in hostile environments. As one British official recently put it, ‘if you can successfully operate in the Niger Delta, that is a very different benchmark from imagining that Basra needs to be like London or Paris.’ The real problem has been persuading Iraqi politicians to enact legislation which would guarantee corporate investments.

The Economist called post-invasion Iraq a ‘capitalist dream’, but although the occupation forcedly privatised pretty much everything, they were not foolish enough to attempt to privatise Iraq’s most precious resource. Instead, the oil companies and the occupational powers have pushed for Production Sharing Agreements (PSAs), in which the state and the oil corporations ‘share’ the risk, ownership and profits of Iraq’s oil wealth. But a groundswell of public opinion developed against the oil law, and against PSAs. In December 2006 Iraq’s trade unions released a joint statement opposing ‘the handing of authority and control over the oil to foreign companies that aim to make big profits at the expense of the people and to rob Iraq’s national wealth by virtue of unfair, long-term oil contracts’. A year later the head of the Directorate of Licensing and Contracts would lament that ‘the political and economic culture and atmosphere in Iraq is not conducive to this contract’ .

But as opposition grew, so did the pressure from oil corporations and the occupying powers. Only a month after the trade union statement, Washington announced a ‘surge’ in occupation troops, and a massive escalation in aerial bombardment. Slow movement towards a corporate-friendly oil law was a significant reason behind the new policy, and the passing of the oil law became one of the four ‘bench marks’ gauging the success of the ‘surge’ initiative.

That bench mark has so far not been met. In February 2007, as more foreign troops flooded into Iraq, the cabinet submitted a new oil law to parliament, but once again it came to nothing.

The Kurdish Regional Government (KRG), less hindered by public opposition, became as impatient as the occupying powers. In August 2007 it passed its own oil law and immediately began awarding contracts to foreign corporations. Before passing its oil law the KRG had already awarded concessions to several small companies including Turkey’s Petoil, a Turkish/Canadian joint venture of General Enerji and Addax Petroleum, and the Norwegian company DNO. Some of these were granted before the Iraqi Constitution itself was signed, let alone an oil law. With the new law in place the KRG has granted contracts to at least another 20 foreign companies, including Heritage Oil (Canada), Hunt Oil (USA), Sterling Energy (Britain) and Gulf Keystone (Britain), OMV (Austria), Reliance (India), and SK Energy (Korea).

Washington’s position on this is not clear. It is known to have opposed independent Kurdish moves in the past. In 2006 US officials met with oil companies to discourage them from dealing separately with the KRG, and Condoleezza Rice met the Kurdish president, Massoud Barzani, to encourage him to cooperate with Baghdad. Washington commented that the Kurdish contracts had ‘needlessly elevated tensions’, but according to the New York Times it ‘hasn’t leaned very hard on the one American oil company involved, Hunt Oil’.

If opposition from Washington was relatively mute, Baghdad was furious. The Natural Resources Minister Hussain al-Shahristani condemned the concessions as illegal and called the companies involved ‘opportunists who are seeking an opportunity where they think they can get a high profit’. In January the Iraq government halted its Basra oil exports to South Korea’s SK Energy in response to its newly acquired Kurdish contract and in February it halted its exports to Austria’s OMV.

Although not enough to discourage smaller companies who thrive in such niches, these threats are enough to discourage the big oil corporations. Iraq’s greatest reserves are in Basra, and that remains the ultimate prize. Royal Dutch Shell commissioned research into Iraqi Kurdistan’s fields but also has hopes for joint projects in the south in partnership with BHP Billiton. Total and Chevron have both teamed up on projects in the south, and BP has studied the southern Rumaila field which borders Kuwait. None of them want to risk alienating the Iraqi government; rather they have done their best to work on service contracts on existing fields, which although do not yield the enormous profits possible under PSAs, might bring them one step closer to searching for, owning and then selling Iraq’s untapped oil.

Today the coveted national oil law seems no closer, but the Kurdish initiative does seem to have forced the central government closer to the oil corporations. In January the Iraqi government invited them to submit documents for a prequalification process pending the eventual planned licensing allocations. Companies involved in the Kurdish contracts were excluded. In February it was announced that as many as 115 companies had registered. The government also announced that Iraq was concluding negotiations for technical support contracts with large oil corporations including BP, Royal Dutch Shell, Exxon Mobil Corp, Total and Chevron.