Iraq's oil: The spoils of war


By Philip Thornton

22 November 2005

Iraqis face the dire prospect of losing up to $200bn (£116bn) of the wealth of their country if an American-inspired plan to hand over development of its oil reserves to US and British multinationals comes into force next year. A report produced by American and British pressure groups warns Iraq will be caught in an "old colonial trap" if it allows foreign companies to take a share of its vast energy reserves. The report is certain to reawaken fears that the real purpose of the 2003 war on Iraq was to ensure its oil came under Western control.

The Iraqi government has announced plans to seek foreign investment to exploit its oil reserves after the general election, which will be held next month. Iraq has 115 billion barrels of proved oil reserves, the third largest in the world.

According to the report, from groups including War on Want and the New Economics Foundation (NEF), the new Iraqi constitution opened the way for greater foreign investment. Negotiations with oil companies are already under way ahead of next month's election and before legislation is passed, it said.

The groups said they had amassed details of high-level pressure from the US and UK governments on Iraq to look to foreign companies to rebuild its oil industry. It said a Foreign Office code of practice issued in summer last year said at least $4bn would be needed to restore production to the levels before the 1990-91 Gulf War. "Given Iraq's needs it is not realistic to cut government spending in other areas and Iraq would need to engage with the international oil companies to provide appropriate levels of foreign direct investment to do this," it said.

Yesterday's report said the use of production sharing agreements (PSAs) was proposed by the US State Department before the invasion and adopted by the Coalition Provisional Authority. "The current government is fast-tracking the process. It is already negotiating contracts with oil companies in parallel with the constitutional process, elections and passage of a Petroleum Law," the report, Crude Designs, said.

Earlier this year a BBC Newsnight report claimed to have uncovered documents showing the Bush administration made plans to secure Iraqi oil even before the 9/11 terrorist attacks on the US. Based on its analysis of PSAs in seven countries, it said multinationals would seek rates of return on their investment from 42 to 162 per cent, far in excess of typical 12 per cent rates.

Taking an assumption of $40 a barrel, below the current price of almost $60, and a likely contract term of 25 to 40 years, it said that Iraq stood to lose between £74bn and $194bn. Andrew Simms, the NEF's policy director, said: "Over the last century, Britain and the US left a global trail of conflict, social upheaval and environmental damage as they sought to capture and control a disproportionate share of the world's oil reserves. Now it seems they are determined to increase their ecological debts at Iraq's expense. Instead of a new beginning, Iraq is caught in a very old colonial trap."

Louise Richards, chief executive of War on Want, said: "People have increasingly come to realise the Iraq war was about oil, profits and plunder. Despite claims from politicians that this is a conspiracy theory, our report gives detailed evidence to show Iraq's oil profits are well within the sights of the oil multinationals."

The current Iraqi government has indicated that it wants to treble production from two million barrels a day this year to six million. The US Energy Information Administration said such an increase would ease "market tensions" that have kept the price high. But governments and oil companies in the West said the report was purely hypothetical and that the issue was a matter for the Iraqi people. They also pointed out that Iraq needed money to rebuild in the sector.

A spokesman for the Foreign Office said the country's oil industry was in desperate need of investment after years of under-investment, UN sanctions, vandalism by Saddam Hussein and more recent sabotage by insurgents and general looting. "The Iraqi government has made it clear that the decision is a matter for its authorities but they understand that it would require a lot of investment," he said. He said it was not surprising that Iraq should look to outside experts to help rebuild an industry that was the key source of revenue to help rebuild the country.

"We work closely with other departments such as the Treasury to give assistance and advice," he said, adding that the Foreign Office had not been involved in specific lobbying.

Gregg Muttitt, of Platform, a campaign group that co-authored the report, said Iraq had an existing - albeit damaged - network of oil expertise and could use current revenues or new borrowings to fund investment. The report named several companies, including the Anglo-Dutch Shell group, as jockeying for position before a new government is elected. In 2003, Walter van de Vijver, then head of exploration and production, said investors would need "some assurance of future income and a supportive contractual arrangement". The groupsaidyesterday that the involvement of foreign oil companies would be determined by the new Iraqi administration. "We aspire to establish a long-term presence in Iraq and a long-term relationship with the Iraqis, including the newly elected government."

No multinationals are operating in Iraq now because of the poor security situation.

About the author: Philip Thornton is the economics correspondent for the UK Independent. This story also appeared in the Independent online edition.

http://www.belfasttelegraph.co.uk/news/sto...sp?story=670335

NoRetreatNoSurrender... what's your opinion on this? Do you agree with the article's main contention?

I don't agree or disagree because so far I have not found any independent confirmation on this story yet.

Iraq oil industry bogged down in cycle of violence
Wed Nov 2, 2005 2:15 PM GMT
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By Mariam Karouny

BAGHDAD (Reuters) - It has become a routine. Iraqi insurgents blow up one of the North Oil Company's facilities out in the scrubland. Engineers go and patch it up. The guerrillas fire on them and they beat a retreat.

It has happened regularly for the past two years and is happening now as North Oil tries to repair a gathering centre hit last week by four explosions. At this rate, officials say, it will take at least a month to restart exports.

Ever since Saddam Hussein's forces burned oil pumped into pits to try to stall invading U.S. troops in 2003, Iraq's main industry has been a favoured proxy target for opponents of its new, U.S.-backed rulers. There is no sign that will change soon.

It is not just infrastructure that is the target. In late October, a North Oil assistant manager was shot dead in Kirkuk.

Foreign investors are interested, in spite of the security problems and political uncertainty ahead of a parliamentary election in December.

However, Oil Minister Ibrahim Bahr al-Uloum said even with cash injections, a vicious circle of violence and economic stagnation will cap exports at no more than 3.5 million barrels per day (bpd) for the next two years.

Iraqi officials and analysts said it was almost impossible to provide security for the oil sector. Until Iraq is secure, the oil sector will continue to struggle.

"You cannot divide security into oil security and the rest of the country's security. It is all one package," said Mustafa Alani, an Iraqi expert at the Gulf Research Center in Dubai.

"You cannot put a plan into action to protect the fields and the pipelines, for example. You can protect part of the oil industry, like a building or so, but not the whole sector. It is impossible," he said.

Exports from the north have been virtually at a standstill because of repeated attacks. Delays in restoring a pipeline network have forced Iraq to inject oil back into the ground.

"How can you protect thousands of kilometres of pipelines?" Alani said. "The oil is being hit for political reasons because insurgents want to hit the government which depends on the oil revenues, so with no political and security stability you cannot secure the oil sector."

POLITICAL TARGET

Analysts linked development in the oil sector to improvements in the political process, security in Iraq and the withdrawal of U.S.-led forces.

"There will only be a way out for the oil sector in Iraq when the country itself is out of its problems. The oil sector is not separate from what is going on in the country," said Saadallah al-Fathi, a former senior Iraqi oil official.

"We have the accumulation of 15 years of sanctions and now two-and-a-half years of occupation. No oil project has been completed in these two years."

Oil exports are Iraq's sole independent source of hard currency needed for reconstruction after crippling economic sanctions and three wars in the past quarter of a century.

Production has been stuck near 2 million bpd and a significant increase is not expected soon.

Repeated sabotage, combined with poor project management and political instability, have hampered Iraq's aim to boost output to 3 million bpd, last seen in 1990.

"Facts say that economy, security and political process are linked together and we cannot move any of this forward without moving the other sectors," Oil Minister Uloum told Reuters.

He was hopeful that, after the election next month to choose a four-year parliament and a government, things would improve.

"The political process is moving ahead so we hope that the economy will also move forward, especially the oil sector."

Uloum, like many oil officials, acknowledged that the oil sector needed immediate and urgent measures to help it recover and outside money was necessary.

"The main issue is that Iraq with a national effort cannot produce more than 3.5 million bpd even if we had the money for the next two years.

"As for Iraq's capacity, it could be increased to 6 million bpd in 2011 and this could not be done without foreign investment taking part."

FRAMEWORK NEEDED

Oil multinationals are waiting until a new investment code with a legal and regulatory framework is in place. International oil firms are eyeing the giant, largely undeveloped oil fields.

Companies are hesitant to invest in Iraq, even though many of them are showing interest and are in constant touch with the minister, said an oil official who declined to be identified.

"Many of them said they are ready to work under the current security situation but they needed more guarantees from the ministry," he said.

"But the current ministry could not give guarantees to any of them, it is an interim one and is leaving soon, besides there is no oil law that would protect any company."

Iraq has the world's third-largest known reserves of oil but decades of war, sanctions, under-investment and now widespread violence and sabotage have left it critically short of fuel. It has to import nearly half the gasoline it needs.

Alani said reforms in the oil sector were unlikely to take place overnight.

"Even if all the conditions in Iraq are good, like they have the money, security and political stability, the sector will not recover within three years."


http://today.reuters.co.uk/news/newsArticl...RE-IRAQ-OIL.xml

November 29, 2005


Iraq caught in an old colonial trap


People have increasingly come to realize the Iraq war was about oil. The current political turmoil in Iraq is the direct result of the illegal occupation, and although the country’s political future is very much in flux, oil remains the central feature of the political landscape.

Despite the country’s massive oil reserves, Iraq has failed so far to manage its industry efficiently in order to bring production capacity to a level commensurate with its reserve potential, and this is due to the numerous lies in the political realm and wars the country had witnessed over the past 25 years.

A report produced by American and British pressure groups has warned that Iraq might soon be caught in an “old colonial trap” if the puppet government, installed by the occupation authority, permitted multinational oil firms take a share of its oil wealth.

Iraq might lose up to $200bn (£116bn) of its oil wealth if the American-inspired plan to hand over development of its oil reserves to U.S. and British firms was put into action next year, according to an article published by The Independent earlier this week.

The Iraqi government has recently announced that the door for foreign investment will be open after the general elections, due to be held next month.

Iraq, which has the world’s second largest proven oil reserves, currently has 115 billion barrels of proved oil reserves. And oil industry experts have recently suggested that a new exploration is expected to raise the country’s reserves to 200+ billion barrels of high-grade crude, extraordinarily cheap to produce.

The four main oil firms in the United States and the UK have long been seeking to get back into Iraq, from which they were excluded with the nationalization of 1972.

During the last days of Saddam’s regime, British and American oil giants envied companies from France, Russia, China, and elsewhere, who managed to get major oil contracts. But UN sanctions (kept in place by the U.S. and the UK) kept those contracts inoperable. But today, nearly three years since the war on Iraq was launched, everything has changed, Washington is now running the show, and its "friendly" companies are almost sure they’ll gain most of the lucrative oil deals expected to worth hundreds of billions of dollars in profits in the coming decades.

Iraq’s recently approved constitution, cooked inside Bush’s administration, grants foreign companies a major role in running the country’s oil wealth. Deals on Production Sharing Agreements that will give the companies control over dozens of fields are expected to be finalized soon, but no contracts can be signed until after elections, when a new government takes office. On the other hand, regional governments are competing for influence over the foreign oil contracts.

War on Want and the New Economics Foundation (NEF), among other groups issued a report saying that the new Iraqi constitution gives way for greater foreign investment.

The U.S. and the British governments have stepped up the pressure on Iraq to permit foreign companies rebuild the country’s oil industry, the report stated, adding that a Foreign Office code of practice issued in summer last year said at least $4bn would be needed to restore production to the levels before the 1990-91 Persian Gulf War.

"Given Iraq's needs it is not realistic to cut government spending in other areas and Iraq would need to engage with the international oil companies to provide appropriate levels of foreign direct investment to do this," the report said.

It was the U.S. State Department which proposed before the invasion the use of production sharing agreements (PSAs). "The current government is fast-tracking the process. It is already negotiating contracts with oil companies in parallel with the constitutional process, elections and passage of a Petroleum Law," the report, Crude Designs, said.

A BBC Newsnight report uncovered earlier this week documents that prove that the American President George W. Bush administration made plans to lay hand on Iraq’s oil wealth even before September 11 attacks on the United States, which he used as a key justification for the war, by claiming that the former Iraqi leader Saddam Hussein had connections to Al Qaeda network, believed to have carried out the attacks.

Based on its analysis of PSAs, it said multinationals firms would seek rates of return on their investment from 42 to 162 per cent, far in excess of typical 12 per cent rates. Taking an assumption of $40 a barrel, it said that Iraq stood to lose between £74bn and $194bn. Andrew Simms, the NEF's policy director, said: "Over the last century, Britain and the U.S. left a global trail of conflict, social upheaval and environmental damage as they sought to capture and control a disproportionate share of the world's oil reserves. Now it seems they are determined to increase their ecological debts at Iraq's expense. Instead of a new beginning, Iraq is caught in a very old colonial trap." Louise Richards, chief executive of War on Want, said: "People have increasingly come to realize the Iraq war was about oil, profits and plunder. Despite claims from politicians that this is a conspiracy theory, our report gives detailed evidence to show Iraq's oil profits are well within the sights of the oil multinationals."

On the other hand, Gregg Muttitt, of Platform, one of the groups that issued the report, says that Iraq had an existing - albeit damaged - network of oil expertise and could use current revenues or new borrowings to fund investment. The report listed a number of companies, including the Anglo-Dutch Shell group, as competing for position before the Iraqi elections. In 2003, Walter van de Vijver, then head of exploration and production, said investors would need "some assurance of future income and a supportive contractual arrangement". The group said that the involvement of foreign oil companies would be determined by the new Iraqi administration. "We aspire to establish a long-term presence in Iraq and a long-term relationship with the Iraqis, including the newly elected government."

“The post-Saddam era poses new challenges. While the current political quagmire adds more complicated factors that could delay any serious and significant capacity development for years to come, the will to move ahead and to develop the oil and gas sectors could at the same time open up opportunities that have hitherto been closed”, according to the Middle East Economic Survey. “It goes without saying that much depends on the future political development of the country as well as the course to be adopted in planning the growth of the oil industry”. Source: Aljazeera.com

http://www.tehrantimes.com/Description.asp...5&Cat=4&Num=005

November 24th, 2005 1:29 pm
Multinationals, not Iraqis, to reap oil fortune: report


LONDON (AFP) - Up to 113 billion dollars (96.6 billion euros) in Iraqi oil revenues are going to multinational oil companies under long-term contracts, and not to the Iraqi people, a social and environmental group alleged.

The group known as Platform said that oil multinationals would be paid between 74 billion pounds (43 billion dollars) and 194 billion pounds (113 billion dollars) with rates of return of between 42.0 percent and 162.0 percent under proposed production-sharing agreements, or PSAs.

"The form of contracts being promoted is the most expensive and undemocratic option available," Platform researcher Greg Muttitt said Tuesday.

"Iraq's oil should be for the benefit of the Iraqi people not foreign oil companies."

Muttitt added: "Iraq's institutions are new and weak. Experience in other countries shows that oil companies generally get the upper hand in PSA negotiations with governments.

"The companies will inevitably use Iraq's current instability to push for highly advantageous terms and lock Iraq to those terms for decades."

The report, titled "Crude Designs: The Rip-Off of Iraq's Oil Wealth", said the majority of Iraqis were against the large-scale involvement of foreign companies in the post-Saddam era.

"Iraqi public opinion is strongly opposed to handing control over oil development to foreign companies," it said.

"But with the active involvement of the US and British governments a group of powerful Iraqi politicians and technocrats is pushing for a system of long-term contracts with foreign oil companies which will be beyond the reach of Iraqi courts, public scrutiny or democratic control."

Under PSAs, foreign companies provide capital investment, including drilling and the construction of infrastructure, and a proportion of oil extracted is allocated to the companies.

But Platform's report alleged that financing oil development could be done instead though government budgetary expenditure, using future oil flows as collateral to borrow money, or using international oil companies through shorter-term and less lucrative contracts.

Louise Richards, chief executive of aid charity War on Want, said: "People have increasingly come to realise that the Iraq war was about oil, profits and plunder."

"Iraq's oil profits, far from being used to alleviate some of the suffering the Iraqi people now face, are well within the sights of the oil multinationals."

http://www.michaelmoore.com/words/index.php?id=4994