The biggest story out of Iraq so far this year may not be the surge, or the latest mass bombing, or the escalating sectarian violence; it might, instead, be a decision that further complicates all of the above. Over the next few weeks, a law to reform Iraq’s oil industry — essentially the only source of income the country has aside from U.S. subsidies — is expected to move toward implementation, and the consequences could be enormous.
Coverage of the proposal has focused on the fact that it doesn’t break up the country’s oil resources, as some had suggested, to various ethnic groups — a piece for the Kurds, a piece for the Shiites, etc. But the real story may be that once the proposal is put into place, international oil companies will have a far better shot at Iraq reserves than ever before.
Iraq has the planet’s largest oil reserves, roughly 10 percent of the world total; it’s also thought to have the largest unexplored potential, primarily in its western desert. “On top of its 115 billion barrels of proven reserves, Iraq is estimated to have between 100 and 200 billion barrels of further possible (as yet undiscovered) reserves,” according to the British public interest group Platform.
Three decades of war and sanctions have left much of Iraq’s oil industry decrepit and outmoded. Under Saddam, the industry was state-controlled; the Bush administration made it clear even before the war that it intended to open Iraqi oil up to more private involvement, and ever since 2003 representatives of various major oil companies have been closely involved in guiding Iraqi oil policy.
The State Department’s Future of Iraq Project, which prior to the invasion drew up a reconstruction blueprint, had a special oil and energy working group whose report recommended using “production sharing agreements” to encourage foreign investment in Iraq’s oil industry. Production sharing agreements are contracts between governments and businesses that nominally leave control in the hands of the government, but de facto turn resources over to the private sector.
A few months after U.S. troops rolled into Baghdad, in July 2003, Coalition Provisional Authority head Paul Bremer appointed Ibrahim Bahr al-Uloum, a member of the State Department’s energy working group, as Iraq’s oil minister. Al-Uloum soon proposed a privatization program, and endorsed production sharing agreements as the route to that goal. Ever since then, the issue of how to open Iraq oil to bidding by international oil firms has been a major topic for Iraqi and American officials.
The Iraqi commission that drew up the current oil-industry proposal reportedly included a representative of BearingPoint, a Virginia-based consulting company (and a spinoff of the accounting firm KPMG) that has a substantial U.S. government contract to assist in developing Iraq’s economic infrastructure. A BearingPoint spokesman told Mother Jones that BearingPoint was advising Iraq on matters relating to banking, oil and taxes, but would not comment on details of the oil consulting.
Details of the new law are hard to come by. Iraqi oil ministry spokesman Assem Jihad last week told the International Herald Tribune that it “allows for concessions to global oil companies as a way to achieve the highest benefit for Iraqis, taking into consideration fair competition between these companies regardless of their nationalities. This law stresses that all oil revenues will go to a central fund and then will be distributed to all Iraqis in all regions and provinces according their population.”
However, it’s clear that tensions over the law remain, especially involving the regional government of Kurdistan. The Kurds are the most vociferous proponents of regional control; they already have handed out small contracts to Canadian, Turkish, and Norwegian oil firms and are currently negotiating a deal with Heritage Oil, a Canadian firm run by the Gulbenkian family. More than a century ago, the Gulbenkians were the first to explore and produce petroleum in what was then Mesopotamia. The British Navy, then switching from coal to oil as the main fuel for its battleships, became a big customer.
Greg Muttitt, co-director of Britain’s Platform, says that in the end, the law is likely to represent a compromise between those, such as the Kurds, who argue for regional control and those, including the Iraq Study Group, who argue that the oil industry should be centralized. Either way, the probable Big Oil winners include ExxonMobil, Chevron, BP, Shell, and the Australian company BHP Billiton of Australia, all of whom have been expressing an interest in the Iraqi business, according to Platform.
James Paul, executive director of the Global Policy Forum, a New York-based non-profit public interest group that tracks the Iraq play, says Iraq offers an irresistible return on investment for oil companies: Its crude costs about $1 a barrel to produce, and world market prices hover around $50 a barrel. Since oil revenues will have to underwrite Iraq’s reconstruction, notes Paul, the future of the oil industry is perhaps the most critical decision for Iraq’s people to make. Yet, he adds, the government seems headed toward passing a “grossly undemocratic” law put together without much public input — but with plenty of advice from the United States.