Oil In A Week (Iraq's Oil at a Crossroads)
Walid Khadduri Al-Hayat - 06/07/08//
Five years after the American occupation of Iraq, oil policy has finally started attracting significant attention from Iraqi policymakers. In fact, 2008 can be considered the year of big oil decisions at this stage of Iraq's history. Currently, the ministry of oil is negotiating two types of contracts with international corporations, one for technical services and the other for development and production. The ministry needs the approval of the council of ministers for the former type whereas the latter needs to be presented in parliament once the oil law has been enacted. Since the ministry has received no approvals for either type, any talk about agreements with international corporations remains premature.
Iraqi officials face numerous challenges in setting up an effective oil policy, the first of which is reaching an agreement on an oil law that draws the general framework of this policy within a constitution whose oil provisions remain ambiguous and vague, keeping the doors open for future disputes. It is worth mentioning that the council of ministers approved an oil law draft in February 2007, but discussion in parliament has been postponed since then as a result of the conflicts of interest among the various political powers in the country. Currently, a political committee is working on drafting a conciliatory version before presenting the draft to parliament for a second time following the recent negotiations between the Kurdish side and the federal government.
The second challenge lies in the attempt by a government under occupation to negotiate with international oil corporations. In all truth, regardless of the efforts by officials to obtain economic conditions in favor of Iraq, opposition forces will continue to perceive such efforts with sarcasm and suspicion, especially after New York Times revealed last week the presence of five American consultants aiding the officials at the ministry of oil in the formulation of contracts. This piece of news alone raises questions about the issue of foreign intervention in the most critical economic decision in Iraq. The question to be raised here is: which side will these consultants be loyal to, Iraq or the American firms?
The Kurdish deals have also created challenges for Iraq, the most significant of which was that they constituted agreements for production-sharing contracts which will increase the pressures on the Iraqi negotiator in other regions to keep up with these agreements. This is despite the fact that the current negotiations are over proven fields which rules out any geological risks. The other issue that will face Iraq is determining the side that will be negotiating with the international oil corporations. Finally, these agreements have raised an unprecedented issue on the regional level as they paved the path to American militants who participated in governing Iraq or in running military operations over the past years to retire from their military careers and to join unknown oil companies to assist them in obtaining exploration and extraction franchises in the potentially oil-rich Iraqi territories. Indeed, a Canadian consortium led by Niko Resources Ltd through its consultant, retired General Jay Garner (the first military governor under the occupation), was awarded the Kara Dagh field in the Kurdistan region last May. Garner's role was revealed during a radio talk in which he explained his role in assisting the Canadian company to obtain the exploration and development contract.
The third problem lies in the fact that most fields whose production improvement is subject to negotiation had been operated and managed by Iraqi engineers, technicians and workers working for national oil companies over the past three decades. This cadre has worked under strenuous conditions where their lives were threatened multiple times. This group strongly and staunchly believes that it is capable of running the oil fields without any foreign help or the reliance on international corporations that will either reap huge gains or acquire shares in the Iraqi oil reserves in return for their services. With respect to this point, officials believe that the country needs those consultancies to improve the productivity of old fields. For example, instead of extracting 15% of the reserves, this share can be increased to 30% or 50% depending on the geology of the field in question. Naturally, this would increase Iraq's production capacity of crude oil and perhaps even double the current levels of production volumes.
As a matter of fact, Iraq needs to increase its oil production and use modern technology to achieve this goal, otherwise what is the point of billions of oil reserves if they remain underground and Iraq failed to produce them at the right time? For example, many indicators point that Iraq can produce up to at least six million barrels of crude oil a day instead of the two million-barrel-a-day level that has prevailed over the past few years.
Chaos across the country also represents another challenge as well as the de facto policy imposed by a few. For example, oil legislation in Iraq Kurdistan represents a major obstacle to Iraqi officials during their negotiations with international corporations. Since Iraq Kurdistan was able to preempt the oil law and sign almost 22 production-sharing agreements without the knowledge of the federal ministry of oil, in fact against its will, what would prevent other regions from adopting the same approach in dealing with international corporations in the future? This raises an important question: Who in Iraq is in charge of negotiation with international oil companies? Is it the regions and provinces as the case was with Iraq Kurdistan, or the federal ministry of oil, as repeatedly reiterated by oil minister Hussein Shahrastani? It is worth mentioning that the provinces law, like the oil law, is currently in the hands of parliament.
The provinces law is also supposed to be presented to parliament before the end of the year and the provincial elections are supposed to take place in the coming few months upon parliament's approval on the abovementioned law.
Another problem facing Iraq in its negotiations with international oil corporations is represented in corruption and bribery that have so prevalent in the country to the extent that Transparency International now ranks Iraq as one of the worst countries in this respect. Additionally, agreements to develop oil fields extend to almost 25 years with profits estimated at billions, especially as they are related to huge productive fields, hence with no risks for the corporations cosigning these contracts. As a result of corruption and the continued occupation, citizens will continue to wonder how those specific corporations earned the contracts which local side benefited from this contract or that, and what political pressures were exercised by the occupying power to support its corporations. The most important question for citizens is where and how Iraqi oil rents are spent, especially as they recently reached almost $38 billion annually. These questions cannot be overlooked during the occupation period and will emerge in the face of oil officials every now and then.
Iraq's oil industry has suffered numerous difficulties over the pat quarter century as a result of wars and international embargo. Currently, it suffers sabotage, terrorism, theft and smuggling. Evidently, the time has come to upgrade and modernize this industry. What matters, however, is not only the principle of cooperation with international corporations, but also identifying the circumstances, the fields and the conditions in which this cooperation will take place, whether transparency is sufficient and whether Iraq will be able to maintain its sovereignty and obtain reasonable economic conditions. These are the questions that need to be asked, and it is time for the Iraqi people to reap the benefits of their country's resources like most other oil countries. The risk lies in establishing the industry on harmful fundamentals and assumptions that will inevitably take a toll on its natural future growth and will limit the ability of the country to make the best out of its natural resources.
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