Summary and Notes from Congressman Kucinich's One Hour Speech
Before the United States House of Representatives On Administration's Efforts to Privatize Iraq
Oil
The
Iraqi "Hydrocarbon Law" is an issue of critical importance, but has been
seriously mischaracterized and I want to provide the House of Representatives
the facts and evidence to support the concerns I have expressed.
As you
know, the Administration set several benchmarks for the Iraqi government,
including passage of the "Hydrocarbon Law" by the Iraqi Parliament. The
Administration has emphasized only a small part of this law, the "fair"
distribution of oil revenues. Consider the fact that the Iraqi "Hydrocarbon Law"
contains a mere three sentences that generally discusses the "fair" distribution
of oil.
Except for three scant lines, the entire 33 page "Hydrocarbon
Law," is about creating a complex legal structure to facilitate the
privatization of Iraqi oil. As such, it in imperative that all of us carefully
read the Iraqi Parliament's bill because the Congress is on the record in
promoting oil privatization.
This war is about oil.
We must not
be party to the Administration's blatant attempt to set the stage for
multinational oil companies to take over Iraq's oil resources.
The
Administration set several benchmarks for the Iraqi government, including
passage of the "Hydrocarbon Law" by the Iraqi Parliament.
And many inside
the beltway are contemplating linking funding for the war in Iraq to the
completion of these benchmarks, including passage of the "Hydrocarbon Law" by
the Iraqi Parliament.
The Administration has once again misled Congress
by mislabeling the draft law as an oil revenues distribution law, just as the
Administration misled Congress about the Iraq war.
The war in Iraq is a
stain on American history. Let us not further besmirch our nation by
participating in the outrageous exploitation of a nation which is in shambles
due to U.S. intervention.
The fact is that except for three scant lines,
the entire 33 page "Hydrocarbon Law," is about creating a complex legal
structure to facilitate the privatization of Iraqi oil.
Analysis of Iraqi "Hydrocarbon
Law" Section by Section:
The Feb
15th, 2007 draft was made available, not because the Iraqi government
released it, but because the Kurds released it.
This version passed the
Iraq Cabinet, and was referred to the Parliament.
- The legislation contains only three sentences in regards to the fair
distribution of oil, but do not resolve any of the issues facing this challenge.
The legislation simply requires that future legislation be submitted for
approval. Thus, this legislation does not even meet the President's benchmark.
- The legislation ensures that the "Chief Executives of important related
petroleum companies" are represented on the Federal Oil and Gas Council, which
approves oil and gas contracts. This is akin to the foreign oil companies
approving their own contracts.
- The legislation ensures the Iraq National Oil Company has no exclusive
rights for exploration, development, production, transportation, and marketing.
The Iraq National Oil Company must compete against foreign oil companies with
rules that benefit the foreign oil companies.
- The legislation gives the Iraq National Oil Company some control of
developed oil fields and "rights to participate" in undeveloped oil fields in
Annex I and II, but these Annexes have never been made public.
- The legislation gives the Iraq National Oil Company temporary control of the
oil pipelines and export terminals, but then directs the Federal Oil and Gas
Council to turn these assets over to any entity with no further instructions.
The opportunity for a foreign oil company to have control over the Iraqi oil
pipeline and export terminals would give that company enormous control of the
Iraqi oil market.
- The legislation demands that "contracts must guarantee the best levels of
coordination" with the Oil Ministry, Iraq National Oil Company, the regions and
oil companies. The legislation mandates that undeveloped oil fields be developed
quickly and oil companies are given explicit authority to "collaborate."
- The legislation does not require contracts to be published for public review
up to two months after the approval.
- The legislation provides up to 35 years of exclusive control over oil fields
for foreign oil companies.
- The legislation provides for a preference to Iraqis for jobs and services,
but only if these benefits do not place extra costs or inconveniences on the
foreign oil companies.
- The legislation states that disputes between the State of Iraq and any
foreign investors will be submitted for arbitration to an international court
and will not be decided upon by an Iraqi court.
- The legislation has four appendices, whose contents remain secret:
ANNEX NO. 1: PRESENT PRODUCING FIELDS ALLOCATED TO THE IRAQ
NATIONAL OIL COMPANY
ANNEX NO. 2: DISCOVERED (UNDEVELOPED) FIELDS
ALLOCATED TO THE IRAQ NATIONAL OIL COMPANY
ANNEX NO. 3: DISCOVERED
(UNDEVELOPED) FIELDS OUTSIDE THE OPERATIONS OF THE IRAQ NATIONAL OIL COMPANY
ANNEX NO. 4: EXPLORATION AREAS
The appendices will effectively make
clear which oil fields will be controlled by the Iraqi National Oil Company and
which are open to foreign control of oil companies.
Iraqi Parliament and Citizens of
Iraq had minimal input in draft oil law, while as the U.S. government and
international oil companies had significant
influence
Middle East
Economic Survey. VOL. XLIX. No 12. 19-Mar-22007. IRAQ. Open Letter From Iraqi
Oil Experts To Parliament. At the same time that we wished that public
opinion and the non-governmental organizations were allowed to review the draft
of the law, as well as the oil cadres that are specialized in this aspects, to
study and enrich it before it is submitted to your esteemed council to discuss
its enacting, we would like to emphasize our opinion that there was a rush in
its issuance under the present complicated circumstances prevalent in our dear
country.
Analysis: Iraq Oil Union Has Storied Past. Ben Lando, UPI.
March 29th, 2007. The unions were kept in the dark, as were most members of
Iraq's parliament, until the draft law was leaked to the media. Even then it was
still out the reach of most of Iraq's citizens.
What does the draft Iraqi oil
law actually do
Except for three scant lines, the entire 33 page "Hydrocarbon
Law," is about creating a complex legal structure to facilitate the
privatization of Iraqi oil.
How will Iraq share the oil?. In the US,
the demand that Iraq pass an oil law is a 'benchmark' that is becoming a
flashpoint. Gail Russell Chaddock. The Christian Science Monitor. May 18,
2007.
The actual draft law has nothing to do with sharing the oil
revenue," says former Iraqi oil minister Issam Al Chalabi, in a phone interview
from Amman, Jordan. The law aims to set a framework for investment by outside
oil companies, including favorable production-sharing agreements that are
typically used to reward companies for taking on risk, he says.
"We know
the oil is there. Geological studies have been made for decades on these oil
fields, so why would we let them [international firms] have a share of the oil?"
he adds. "Iraqis will say this is solid proof that Americans have staged the war
... because of this law."
Iraq Oil Law Details Untouched Fields,
Blocks -Document. Hassan Hafidh. DOW JONES NEWSWIRES. 4 March 2007.
Iraq's draft hydrocarbon law, the centerpiece in the development of the
country's shaky oil industry, details dozens of untouched oil fields
loaded with proven reserves and scores of exploration blocks that may prove a
magnet to international oil companies, according to a document seen by Dow Jones
Newswires.
Some Iraqi Politicians Urge Rejection of Draft Oil Law.
Hassan Hafidh. Dow Jones Newswires. March 10th, 2007.
The law, if
passed, is expected to open the country's billions of barrels of proven oil
reserves, the world's third largest, to foreign investors.
Our Man In Iraq. Daphne Eviatar, American Lawyer. April 25th,
2007
Under the new law, the Iraq National Oil Company would have
exclusive control of only about 17 of Iraq's approximately 80 known oil
fields.
The law would also allow the government to negotiate different
kinds of exploration and production contracts with foreign oil companies,
including Production Sharing Agreements, or PSAs. Energy lawyers favor these
because they allow oil companies to secure long-term deals and book oil reserves
as assets on their company balance sheets.
Under the proposed law,
foreign companies would not have to invest their earnings in Iraq, hire Iraqi
workers, or partner with Iraqi companies.
Iraqi officials insist oil
law won't favour U.S. Morning Star Online. January 28th 2007.
The proposal would provide for production sharing agreements that would give
international firms 70 per cent of the oil revenues to recover their initial
investments and subsequently allow them 20 per cent of the profits without any
tax or restrictions on the transferring of funds abroad.
Time to
Do the Math in Iraq. Ted Nace. April 18, 2007. CommonDreams.org
The most
notable feature of the law is a revival of an exploitive type of contract widely
used prior to the rise of Arab nationalism in the 1960s, known as a production
sharing agreement. Although the Oil Law uses an alternative term, "exploration
and production contract," the effect is the identical. The new arrangement would
allow the bulk of Iraq's reserves to be controlled by outside oil companies,
privatizing what has until now been a nationalized resource under the auspices
of the Iraq National Oil Company. It specifies the royalty that will be paid to
Iraq: "12.5 percent of gross production, measured at the entry flange to the
main pipeline." And as if the rest of the law were not already explicit enough,
Article 35(A) reiterates: "Holders of exploration and production rights may
transfer any net profits from petroleum operations to outside Iraq after paying
taxes and fees owed."
Crude Designs: The Rip-Off of Iraq's Oil
Wealth. Greg Muttitt. PLATFORM. 2005.
· At an oil price of $40 per
barrel, Iraq stands to lose between $74 billion and $194 billion over the
lifetime of the proposed contracts (2), from only the
first 12 oilfields to be developed. These estimates, based on conservative
assumptions, represent between two and seven times the current Iraqi government
budget.
· Under the likely terms of the contracts, oil company rates of
return from investing in Iraq would range from 42% to 162%, far in excess of
usual industry minimum target of around 12% return on
investment.
March 13, 2007 Op-Ed Contributor. Whose Oil Is It,
Anyway? ANTONIA JUHASZ
TODAY more than three-quarters of the world's
oil is owned and controlled by governments. It wasn't always this way.
Until
about 35 years ago, the world's oil was largely in the hands of seven
corporations based in the United States and Europe. Those seven have since
merged into four: ExxonMobil, Chevron, Shell and BP. They are among the world's
largest and most powerful financial empires. But ever since they lost their
exclusive control of the oil to the governments, the companies have been trying
to get it back.
Iraq's oil reserves - thought to be the second largest in
the world - have always been high on the corporate wish list. In 1998, Kenneth
Derr, then chief executive of Chevron, told a San Francisco audience, "Iraq
possesses huge reserves of oil and gas - reserves I'd love Chevron to have
access to."
A new oil law set to go before the Iraqi Parliament this
month would, if passed, go a long way toward helping the oil companies achieve
their goal. The Iraq hydrocarbon law would take the majority of Iraq's oil out
of the exclusive hands of the Iraqi government and open it to international oil
companies for a generation or more.
In March 2001, the National Energy
Policy Development Group (better known as Vice President Dick Cheney's energy
task force), which included executives of America's largest energy companies,
recommended that the United States government support initiatives by Middle
Eastern countries "to open up areas of their energy sectors to foreign
investment." One invasion and a great deal of political engineering by the Bush
administration later, this is exactly what the proposed Iraq oil law would
achieve. It does so to the benefit of the companies, but to the great detriment
of Iraq's economy, democracy and sovereignty.
Since the invasion of Iraq,
the Bush administration has been aggressive in shepherding the oil law toward
passage. It is one of the president's benchmarks for the government of Prime
Minister Nuri Kamal al-Maliki, a fact that Mr. Bush, Secretary of State
Condoleezza Rice, Gen. William Casey, Ambassador Zalmay Khalilzad and other
administration officials are publicly emphasizing with increasing
urgency.
The administration has highlighted the law's revenue sharing
plan, under which the central government would distribute oil revenues
throughout the nation on a per capita basis. But the benefits of this excellent
proposal are radically undercut by the law's many other provisions - these allow
much (if not most) of Iraq's oil revenues to flow out of the country and into
the pockets of international oil companies.
The law would transform
Iraq's oil industry from a nationalized model closed to American oil companies
except for limited (although highly lucrative) marketing contracts, into a
commercial industry, all-but-privatized, that is fully open to all international
oil companies.
The Iraq National Oil Company would have exclusive
control of just 17 of Iraq's 80 known oil fields, leaving two-thirds of known -
and all of its as yet undiscovered - fields open to foreign control.
The
foreign companies would not have to invest their earnings in the Iraqi economy,
partner with Iraqi companies, hire Iraqi workers or share new technologies. They
could even ride out Iraq's current "instability" by signing contracts now, while
the Iraqi government is at its weakest, and then wait at least two years before
even setting foot in the country. The vast majority of Iraq's oil would then be
left underground for at least two years rather than being used for the country's
economic development.
The international oil companies could also be
offered some of the most corporate-friendly contracts in the world, including
what are called production sharing agreements. These agreements are the oil
industry's preferred model, but are roundly rejected by all the top oil
producing countries in the Middle East because they grant long-term contracts
(20 to 35 years in the case of Iraq's draft law) and greater control, ownership
and profits to the companies than other models. In fact, they are used for only
approximately 12 percent of the world's oil.
Iraq's neighbors Iran,
Kuwait and Saudi Arabia maintain nationalized oil systems and have outlawed
foreign control over oil development. They all hire international oil companies
as contractors to provide specific services as needed, for a limited duration,
and without giving the foreign company any direct interest in the oil produced.
Iraqis may very well choose to use the expertise and experience of
international oil companies. They are most likely to do so in a manner that best
serves their own needs if they are freed from the tremendous external pressure
being exercised by the Bush administration, the oil corporations - and the
presence of 140,000 members of the American military.
Iraq's five trade
union federations, representing hundreds of thousands of workers, released a
statement opposing the law and rejecting "the handing of control over oil to
foreign companies, which would undermine the sovereignty of the state and the
dignity of the Iraqi people." They ask for more time, less pressure and a chance
at the democracy they have been promised.
Basic Facts about Iraqi
Oil
How Much Oil Does Iraq Have?
Iraq Memo #16, May 12, 2003 Gal Luft, Co-Director, Institute for the Analysis of
Global Security (IAGS) Brookings Institution
Over the past several
months, news organizations and experts have regularly cited Department of Energy
(DOE) Energy Information Administration (EIA) figures claiming that the
territory of Iraq contains over 112 billion barrels (bbl) of proven reserves-oil
that has been definitively discovered and is expected to be economically
producible. In addition, since Iraq is the least explored of the oil-rich
countries, there have been numerous claims of huge undiscovered reserves there
as well-oil thought to exist, and expected to become economically recoverable-to
the tune of hundreds of billions of barrels. The respected Petroleum
Economist Magazine estimates that there may be as many as 200 bbl of oil in
Iraq; the Federation of American Scientists estimates 215 bbl; a study by the
Council on Foreign Relations and the James A. Baker III Institute at Rice
University claimed that Iraq has 220 bbl of undiscovered oil; and another study
by the Center for Global Energy Studies and Petrolog & Associates offered an
even more optimistic estimate of 300 bbl-a number that would give Iraq reserves
greater even than those of Saudi Arabia. In a Guardian interview before
the war, Taha Hmud Moussa, Saddam's deputy oil minister, said that all of Iraq's
oil reserves "will exceed 300bbl when all Iraq's regions are
explored."
If true, this would mean that Iraq has roughly a quarter of
all of the world's oil.
Oil in Iraq: the heart of the Crisis.
James A. Paul. Global Policy
Forum . December, 2002. According to Oil and Gas Journal, Western
oil companies estimate that they can produce a barrel of Iraqi oil for less than
$1.50 and possibly as little as $1, including all exploration, oilfield
development and production costs and including a 15% return. This is similar to
production costs in Saudi Arabia and lower than virtually any other country.
Map of Oil Fields in Iraq: This map is from March 5,
2002 court order as a result of Judicial Watch's Freedom of Information Act
(FOIA) lawsuit a FIOA request. The map came from the Commerce Department,
related to the activities of the Cheney Energy Task Force.
Current Price of Oil: $65 [May 22th]
History of Oil Exploitation in
Iraq
Following WWI, the British
assumed control of Iraq from the Ottoman Empire. In 1925, a 75-year concession
contract was granted to American, French, and British oil companies. By the
1930's, the consortium was in complete control of all Iraqi oil. The oil
companies controlled the oil fields and reaped almost all the profits.
It
was not until the overthrow of the British installed monarchy in 1958 that the
foreign control of oil was challenged. In 1961, the consortium's rights were
limited to current production. And beginning in 1972, Iraq oil resources were
nationalized, a process that was finalized in 1975.
Statement issued
by the Iraqi Labor Union Leadership at a Seminar held from 10 to 14 December
2006, in Amman, Jordan to discuss the draft Iraqi Oil Law
Iraq is
rich in natural wealth, foremost among which is its oil wealth, the essence of
the economic life for Iraq and the world, which has been the focus of attention
of the large industrialized countries in particular. The British and American
oil companies were the first to obtain the concession to extract and invest
Iraqi oil, nearly 80 years ago. After Iraq got rid of this octopus network,
these foreign oil companies have again attempted to dominate this important oil
wealth, under numerous pretexts and invalid excuses.
Iraqi Oil Unions Objections to
Hydrocarbon Act
Sunday, May 13,
2007
Open Letter to US Congress and European Parliament
Open
Letter to the Members of the US Congress who Oppose the War on Iraq
To members of the European Parliaments who Oppose the
War
Peace be upon you and greetings to you all,
We wish to
clarify certain matters relating to events in Iraq for our friends among the
members of the US Congress. It is common knowledge that the occupation spared
neither the old nor the young, and that Iraq is passing through the most
difficult of times because all and sundry are hounding it and covet a share of
its riches. We see no good reason for linking the passing of the feeble Iraqi
oil law to the withdrawal of the occupation troops from Iraq.
Everyone
knows that the oil law does not serve the Iraqi people, and that it serves Bush,
his supporters and the foreign companies at the expense of the Iraqi people who
have been wronged and deprived of their right to their oil despite enduring all
difficulties.
We ask our friends not to link withdrawal with the oil law,
especially since the USA claimed that it came to Iraq as a liberator and not in
order to control Iraq's resources.
The general public in Iraq is totally
convinced that Bush wants to rush the promulgation of the oil law so as to be
leaving Iraq with a victory of sorts, because his project is failing every day
and the occupation is collapsing in all parts of Iraq.
We wish to see you
take a true stance for the children of Iraq, and we always say that history will
remember those who advance peace over war.
With my regards,
Hassan
Jum'a Awwad
Head of the Iraqi Federation of Oil Unions
'History Will Not Forgive Those Who Play Recklessly With Our Wealth'-
Oil Union Leader's Speech on Oil Law.
The speech of the head of the
Federation of Oil Unions in Basra to the meeting held to debate the [proposed]
oil law and the oil investment laws on Tuesday 6th February
2007.
"Recently the Constitution of Iraq on which the Iraqi people
voted in the most dire and difficult of conditions notes in clause 111 that oil
and gas are the property of the Iraqi people. But, alas, this clause in the
constitution will remain but ink on paper if the oil law and oil investment law
being presented to the Parliament are ratified, laws which permit
production-sharing contracts, laws without parallel in many oil producers,
especially the neighbouring countries. So why should Iraqis want to introduce
such contracts in Iraq given that applying such laws will rob the Iraqi
government of the most important thing it owns? "
"We send a message to
all the members of the Iraqi Parliament, when debating the oil and investment
laws, to bear the Iraqis in mind, to protect the national wealth, and to look at
the neighbouring countries. Have they introduced such laws even when their
relations with foreign companies are closer than in Iraq?"
Iraq has Options, Beyond
Privatization, to
Redevelop their Oil Capacity
Middle East Economic Survey. VOL. XLIX. No 12. 19-Mar-22007.
IRAQ. Open Letter From Iraqi Oil Experts To Parliament
We anticipate
that the motive behind the issuance of this law is based on the increase of the
production capacity through the attraction of foreign investments, in this
regards we feel and recommend to plan the increase of the capacity gradually
starting with the rehabilitation of the currently producing fields by national
effort (Iraq National Oil Company), followed by the development of the giant
discovered but not developed, or partially developed fields, and to schedule the
priority of their development according to their capacities and development
costs irrespective of their geographical locations through service or management
contracts with companies possessing the requisite efficiency and technical
ability and as the need arises, and to avoid long term contracts with foreign
companies in the present time.
Statement issued by the
Iraqi Labor Union Leadership at a Seminar held from 10 to 14 December 2006, in
Amman, Jordan to discuss the draft Iraqi Oil Law
Whereas oil and gas
are greatly important for the Iraqi economy, and whereas the building of the
State and its institutions are dependent on it, as the main source of the
national income, it is therefore the right of the Iraqi people to read the draft
oil law under consideration. The Iraqi people refuse to allow the future of
their oil to be decided behind closed doors.
Time to Do the Math in
Iraq. Ted Nace. Wednesday, April 18, 2007. CommonDreams.org.
If the law
is passed, Iraq will part ways with the other major Middle Eastern oil
producers, including Saudi Arabia, Kuwait, Libya, and Iran. Those countries all
maintain national control over oil, bringing in foreign corporations only as
needed using technical service contracts, under which control is not
relinquished and there is no sharing of profits.
Crude Designs: The
Rip-Off of Iraq's Oil Wealth. Greg Muttitt. PLATFORM. 2005.
According to
International Energy Agency figures, PSAs are only used in respect of about 12%
of world oil reserves, in countries where oilfields are small (and often
offshore), production costs are high, and exploration prospects are uncertain.
Tomgram: Michael Schwartz, The Prize of Iraqi Oil
None of
these conditions apply in Iraq: huge reservoirs of easily accessible oil are
already proven to exist, with more equally accessible fields likely to be
discovered with little expense. This is why none of Iraq's neighbors utilize
PSAs. Saudi Arabia, Kuwait, Iran, and the United Arab Emirates all pay the
multinationals a fixed rate to explore and develop their fields; and all of the
profits become state revenues.
How will Iraq share the oil?. In the
US, the demand that Iraq pass an oil law is a 'benchmark' that is becoming a
flashpoint. Gail Russell Chaddock. The Christian Science Monitor. May 18,
2007.
In New York, oil industry analyst Fadel Gheit of Oppenheimer
& Co. Inc. has reviewed both the official Arabic version of the draft law
and the unofficial English translation and says they are ambiguous and seem to
be written in haste.
"Why shouldn't Iraq use Iraqi nationals to decide
how the contracts will be awarded? They have oil engineers. Use the best brains
in the country and, hopefully. they will do what is in the best interest of the
country," he says. "Otherwise, there's an impression that American companies are
telling Iraqis what to do."
Key evidence suggesting U.S.
invasion was about oil
Dick
Cheney. CEO of Halliburton. Speech at the Institute of Petroleum. 1999.
By 2010 we will need on the order of an additional fifty million barrels a
day. So where is the oil going to come from? Governments and the national oil
companies are obviously controlling about ninety per cent of the assets. Oil
remains fundamentally a government business. While many regions of the world
offer great oil opportunities, the Middle East with two thirds of the world's
oil and the lowest cost, is still where the prize ultimately lies, even though
companies are anxious for greater access there, progress continues to be slow.
Crude Designs: The Rip-Off of Iraq's Oil Wealth. Greg Muttitt. PLATFORM. November 2005.
Chapter 4. From Washington to Baghdad: Planning Iraq's oil future
PRE-INVASION PLANNING
Prior to the 2003 invasion, the principal
vehicle for planning the new post-war Iraq was the US State Department's Future
of Iraq project. This initiative, commencing as early as April 2002, involved
meetings in Washington and London of 17 working groups, each comprised of 10-20
Iraqi exiles and international experts selected by the State Department(33).
The
"Oil and Energy" working group met four times between December 2002 and April
2003. Although the full membership of the group has never been revealed, it is
known that Ibrahim Bahr al-Uloum, the current Iraqi Oil Minister, was a
member.(34) The 15-strong
oil working group concluded that Iraq "should be opened to international oil
companies as quickly as possible after the war" and that "the country should
establish a conducive business environment to attract investment of oil and gas
resources."(35)
The
subgroup went on to recommend production sharing agreements (PSAs) as their
favoured model for attracting foreign investment. Comments by the handpicked
participants revealed that "many in the group favoured production-sharing
agreements with oil companies." Another representative commented, "Everybody
keeps coming back to PSAs."(36)
The
reasons for this choice were explained in the formal policy recommendations of
the working group, published in April 2003:
"Key attractions of
production sharing agreements to private oil companies are that although the
reserves are owned by the state, accounting procedures permit the companies to
book the reserves in their accounts, but, other things being equal, the most
important feature from the perspective of private oil companies is that the
government take is defined in the terms of the [PSA] and the oil companies are
therefore protected under a PSA from future adverse legislation."(37)
The
group also made it clear that in order to maximize investments, the specific
terms of the PSAs should be favourable to foreign investors:
"PSAs can
induce many billions of dollars of foreign direct investment into Iraq, but only
with the right terms, conditions, regulatory framework, laws, oil industry
structure and perceived attitude to foreign participation."(38)
Recognising the importance of this announcement, The Financial Times
noted:
"Production-sharing deals allow oil companies a favourable profit
margin and, unlike royalty schemes, insulate them from losses incurred when the
oil price drops. For years, big oil companies have been fighting for such
agreements without success in countries such as Kuwait and Saudi
Arabia."(39)
The
article concluded that: "The move could spell a windfall for big oil companies
such as ExxonMobil, Royal Dutch/Shell, BP and TotalFinaElf..."
SHAPING THE NEW IRAQ
The US and UK have worked hard to ensure
that the future path for oil development chosen by the first elected Iraqi
government will closely match their interests. So far it appears they have been
highly successful: production sharing agreements, which were first proposed by
the U.S. State Department group, have emerged as the model of oil development
favoured by all the post-invasion phases of Iraqi government.
Phase
1: Coalition Provisional Authority and Iraqi Governing Council
During
the first fourteen months following the invasion, occupation forces had direct
control of Iraq through the Coalition Provisional Authority. Stopping short of
privatising oil itself, the CPA began setting up the framework for a longer-term
oil policy.
The CPA appointed former senior executives from oil
companies to begin this process. The first advisers were appointed in January
2003, before the invasion even started, and were stationed in Kuwait ready to
move in. First, there were Phillip Carroll, formerly of Shell, and Gary Vogler,
of ExxonMobil, backed up by three employees of the US Department of Energy and
one of the Australian government. Carroll described his role as not only to
address short-term fuel needs and the initial repair of production facilities,
but also to:
· "Begin planning for the restructuring of the Ministry of
Oil to improve its efficiency and effectiveness; [and]
· Begin thinking
through Iraq's strategy options for significantly increasing its production
capacity."(40)
In October
2003, Carroll and Vogler were replaced by Bob McKee of ConocoPhillips, and Terry
Adams of BP, and finally in March 2004, by Mike Stinson of ConocoPhillips and
Bob Morgan of BP (d). The £147,700
cost of the two British advisers, Adams and Morgan, was met by the UK
government.(41) Following the
handover to the Iraq Interim Government in June 2004, Stinson became an adviser
to the US Embassy in Baghdad.
On 13 July 2003, in the first move towards
Iraqi self-government, the CPA Administrator Paul Bremer appointed the
quasi-autonomous, but virtually powerless, Iraqi Governing Council. On the same
day Bremer appointed Ibrahim Bahr al-Uloum, who had been a member of the U.S.
State Department oil working group, as Minister for Oil.
Within months
of his appointment Bahr al-Uloum announced that he was preparing plans for the
privatisation of Iraq's oil sector, but that no decision would be taken until
after elections scheduled for 2005.(42)
Speaking
to the Financial Times, Bahr al-Uloum, a US-trained petroleum engineer, said:
"The Iraqi oil sector needs privatisation, but it's a cultural issue," noting
the difficulty of persuading the Iraqi people of such a policy. He then
proceeded to announce that he personally supported:
· Production
sharing agreements for upstream (i.e. extraction of crude oil) development;
· giving priority to US oil companies, "and European companies,
probably."(43)
Phase 2:
Iraq Interim Government
In June 2004, the CPA formally handed over Iraqi
sovereignty to an interim government, headed by Prime Minister Iyad Allawi.
The position of Minister of Oil was handed to Thamir al-Ghadban, a
UK-trained petroleum engineer and former senior adviser to Bahr al-Uloum. In an
interview in Shell's in-house magazine, al-Ghadban announced that 2005 would be
the "year of dialogue" with multinational oil companies.(44)
About
three months after taking power, Allawi issued a set of guidelines to the
Supreme Council for Oil Policy, from which the Council was to develop a full
petroleum policy. Pre-empting both the Iraqi elections and the drafting of a new
constitution, Allawi's guidelines specified that while Iraq's currently
producing fields should be developed by the Iraq National Oil Company (INOC),
all other fields should be developed by private companies, through the
contractual mechanism of production sharing agreements (PSAs).(45)
Iraq has
about 80 known oilfields, only 17 of which are currently in production. Thus the
Allawi guidelines would grant the other 63 to private companies.
Allawi
also added that:
· New fields would be developed exclusively by private
companies, with the policy ruling out any participation of INOC;(46)
· The
national oil company INOC, which manages existing oil fields, should be
part-privatised;(47)
· The Iraqi
authorities should not spend time negotiating the best possible deals with the
oil companies; instead they should proceed quickly, agreeing whatever terms the
companies will accept, with a possibility of renegotiation (e) later.(48)
Phase
3: Transitional Government and writing the Constitution
The interim
government was replaced in early 2005 by the election of Iraq's new National
Assembly, which led to the formation of the new government with Ibrahim
al-Ja'afari as Prime Minister. In a move which no doubt assisted policy
continuity from the period of US control, Ibrahim Bahr al-Uloum was reappointed
to the position of Minister for Oil.
Meanwhile, Ahmad Chalabi, the
Pentagon's former favourite to run Iraq, was appointed chair of the Energy
Council, which replaced the Supreme Council for Oil Policy as the key overseer
of energy and oil policy. Back in 2002 Chalabi had famously promised that "US
companies will have a big shot at Iraqi oil."(49)
By June
2005, government sources reported that a Petroleum Law (f) had been drafted,
ready to be enacted after the December elections. According to the sources -
although some details are still being debated - the draft of the Law specifies
that while Iraq's currently producing fields should be developed by INOC, new
fields should be developed by private companies.
Foreign
Policy In Focus. When it comes to oil, the U.S. administration is bypassing
democracy in Iraq. Oil Pressure. Greg Muttitt | August 28, 2006
Since
the new Iraqi government was formed in May 2006, the U.S. government has
dramatically scaled up its efforts to provide "advice". Last month, the
administration and major oil companies reviewed and commented on a new law
governing Iraq's crucial oil sector, before it has even been seen by the Iraqi
parliament.
Violating the very notions of freedom and democracy Bush
invokes in nearly every speech on Iraq, the U.S. government has actively
intervened in the restructuring of Iraq's oil industry since at least 2002.
In October 2002, the State Department established a working group on oil
and energy, as part of its "Future of Iraq" project. The project brought
together influential exiled Iraqis with US government officials and
international consultants. Later, some members of the group became part of the
Iraqi government. The result of the project's work was a draft framework for
Iraq's oil policy. Despite Iraq being rich in oil and technical expertise, the
group recommended a major role for foreign companies, through long-term
contracts--an approach which would set Iraq at odds with the rest of the Middle
East, where major oil producers keep their oil in the public sector.
In
March 2003, the wheels started to turn as the Coalition Provisional Authority
appointed the former head of Shell USA as senior oil adviser, in daily contact
with the Iraqi Ministry of Oil. He was joined by an executive from ExxonMobil,
and after six months, the post was rotated to former managers of ConocoPhillips
and BP.
In December 2003, the framework was set out in more detail when
USAID commissioned a report by the privatisation specialists BearingPoint
entitled "Options for developing a sustainable, long-term Iraqi oil industry."
The report reinforced the "Future of Iraq's" report, recommending long-term
contracts with foreign companies. Pointing to the "success" of this model,
BearingPoint used Azerbaijan's privatization model as an example. The report
commented approvingly that Azerbaijan's high corruption and lack of democracy
had not impeded investment--the government had simply given away a higher share
of revenues, in order to attract companies. The implication was that Iraq, which
has a nascent democracy and chronic corruption, might follow the same approach.
After the handover to the interim government in June 2004, senior oil
advisers--now based within the Iraq Reconstruction Management Office (IRMO) in
the U.S. Embassy--continued work closely with the Oil Ministry in shaping
policy. Post holders included executives from ChevronTexaco and Unocal.
In 2006, these efforts intensified. In February, the IRMO advisers
accompanied eight senior officials from the Oil Ministry on a trip to the U.S.,
sponsored by the U.S.' Trade and Development Agency. On the trip, they met oil
company representatives to discuss the future structure of the Iraqi oil
industry.
The same month, at the request of the State Department, USAID
provided an adviser to the Oil Ministry, again from BearingPoint, to work
directly on a new oil law, providing "legal and regulatory advice in drafting
the framework of petroleum and other energy-related legislation, including
foreign investment."
The U.S. campaign on the fledgling Iraqi government
has been successful. Following his appointment in May, new Oil Minister Husayn
al-Shahristani announced that one of his top priorities would be the writing of
an oil law to allow Iraq to sign contracts with "the largest companies."
This would be the first time in more than thirty years that foreign
companies would receive a major stake in Iraq's oil. Oil was brought into public
ownership and control back in 1975.
But with the ink not yet on the
paper, the U.S. has maintained its pressure. On his visit to Baghdad in July
2006, U.S. Energy Secretary Bodman insisted that the Iraqi government must "pass
a hydrocarbon law under which foreign companies can invest." But the work to
make this case had already been done: "We got every indication that they were
willing and also felt a necessity to open the sector," he commented, after
meeting with the Oil Minister and Iraqi officials.
Mr. Bodman did not
stop at reviewing the draft law himself in Baghdad: he also arranged for Dr.
Al-Shahristani to meet with nine major oil companies - including Shell, BP,
ExxonMobil, ChevronTexaco and ConocoPhillips - for them to comment on the draft
as well, during the Minister's trip to Washington DC the following week.
Given the pressures involved, perhaps the Minister felt he did not have
much choice. His promise to pass the law through parliament by the end of 2006
was set in Iraq's agreement with the International Monetary Fund last December.
According to that agreement, IMF officials would also review and comment on a
draft in September.
And still, the draft law has not been seen by the
Iraqi parliament. Meanwhile, an official from the Oil Ministry has stated that
Iraqi civil society and the general public will not be consulted at all.
The issues could hardly be more important for Iraq. Oil accounts for
more than 90% of government revenue, and is the main driver of Iraq's economy.
And decisions made in the coming months will not be reversible - once contracts
are signed, they will have a major bearing on Iraq's economy and politics for
decades to come.
No wonder a recent poll showed that when asked what
Iraqis thought were the three main reasons why the United States invaded Iraq,
76% gave "to control Iraqi oil" as their first choice.
US/UK Pressure to Pass the Oil
Law
Iraq Oil; Iraqi Leader Fears
Ouster Over Oil Money. By Steven R. Hurst. 13 March 2007. Associated Press
Prime Minister Nouri al-Maliki fears the Americans will torpedo his
government if parliament does not pass a law to fairly divvy up the country's
oil wealth among Iraqis by the end of June, close associates of the leader told
The Associated Press on Tuesday.
The al-Maliki associates said U.S.
officials, who they would not name, told the prime minister that President Bush
was committed to the current government but continued White House support
depended on positive action on all the benchmarks -- especially the oil law and
sectarian reconciliation -- by the close of this parliamentary session June 30.
"Al-Maliki is committed to meeting the deadline because he is convinced
he would not survive in power without U.S. support," one of the associates said.
Iraqis Resist US Pressure to Enact Oil Law:
Foreign investment and Shiite control are the primary concerns. A White House
deadline for passage is in doubt. Tina Susman. Los Angeles Times. May 13,
2007
Vice President Dick Cheney. "I did make it clear that we believe
it's very important to move on the issues before us in a timely fashion, and
that any undue delay would be difficult to explain."
U.S.
Energy Secretary Calls on Iraq To Open Oil Sector Foreign investment, better
security can increase oil revenue, he says By Andrzej Zwaniecki. Washington File
Staff Writer. 21 July 2006
U.S. Energy Secretary Samuel Bodman has
urged Iraq to establish a legal framework that would be instrumental in
attracting foreign investment to its oil sector.
"Iraq will only realize
its very considerable potential as an oil producer with the help of investors,"
he told reporters July 18 during his visit in Baghdad, Iraq.
Bodman said
the Iraqi government is working on a hydrocarbon law designed to regulate
investment by foreign oil companies and that Iraqi officials he met, including
Prime Minister Nuri Al-Maliki and Minister of Oil Hussein al-Shahristani, told
him that they hope the parliament will pass the law by the end of
2006.
"We got every indication that they were willing and also felt a
necessity to open the sector," Bodman said. "Iraq has enormous wealth, and it
needs to take advantage of that."
Another U.S. official -- Commerce
Secretary Carlos Gutierrez -- also called on Iraq to "carry through on promising
liberalization and reform measures."
Department
of Energy. Press release. July 26, 2006. Secretary Bodman Hosts Iraqi Ministers
of Oil and Electricity. Energy Leaders sign MOU to further promote electricity
cooperation
During his meeting with Minister al-Shahristani,
Secretary Bodman stressed the importance of developing and implementing a
national hydrocarbon law, which will allow much needed foreign investment in the
oil and natural gas sector of their economy and ensure Iraq's natural resources
are used for the benefit of all the Iraqi people. In addition, at Minister
al-Shahristani's request, Secretary Bodman convened a meeting of oil sector
leaders to discuss how the private sector can help Iraq develop its energy
infrastructure and the role of a national hydrocarbon law in Iraq.
Briefing En Route Baghdad, Iraq. Secretary
Condoleezza Rice. February 17, 2007. Department of State.
The wait for
progress can't be endless, but we track not just the end points but the process
itself. And I do think particularly on the national oil law there's been a lot
of progress made and they seem to be very close to concluding that oil law. And
so it's really important that they complete it, but it's also important that
they've made progress.
US wants new Iraq oil
law so foreign firms can take part. 18 July 2006. Agence France Presse
The United States on Tuesday urged Iraq to adopt a new hydrocarbon law
that would enable US and other foreign companies to invest in the war-torn
country's oil sector.
Iraq, which has had decades of socialist economy,
must "pass a new law, a new hydrocarbon law under which international companies
will be able to make investments in Iraq," said US Energy Secretary Samuel
Bodman during a visit to Baghdad.
Bodman said a liberalised hydrocarbon
sector would help Iraq realise "its very considerable potential with the benefit
of investments from international community."
Foreign office helped
set up Iraqi oil deals. Tim Webb. The Independent (UK). March 11th, 2007
The British Government intervened to help UK and US energy giants in their
attempts to secure lucrative contracts to exploit Iraq's ruined oilfields.
The Foreign Office delivered a report by the International Tax and
Investment Center (ITIC) - a Washington-based think-tank backed by a host of
multinationals, including oil companies such as Shell and BP - to Iraqi
officials in Baghdad, it has emerged.
The British ambassador to Iraq
formally sent the "road-map" study on the Iraqi oil industry to the then Iraqi
minister of finance, according to documents seen by The Independent on
Sunday. The study recommended the Iraqi government sign long-term
production-sharing agreements with foreign oil companies.
Emails between
civil servants also showed that the Foreign Office helped the ITIC secure an
audience with senior officials from the Iraqi Oil Ministry so that it could
present its report.
The ITIC hosted a conference in Beirut in January
2005 to give a formal presentation to Iraqi ministers. Executives from BP,
Shell, ChevronTexaco, the Italian oil company ENI and its French rival Total
attended.
A diplomat from the Foreign Office, who helped the ITIC further
its relationship with the Iraqis, was also present.
The Iraq Study Group Report
Section II.B.5. The Oil
Sector
Since the success of the oil sector is critical to the success of
the Iraqi economy, the United States must do what it can to help Iraq maximize
its capability. Iraq, a country with promising oil potential, could restore oil
production from existing fields to 3.0 to 3.5 million barrels a day over a
three- to five-year period, depending on evolving conditions in key reservoirs.
Even if Iraq were at peace tomorrow, oil production would decline unless current
problems in the oil sector were addressed.
RECOMMENDATION 62:
* As
soon as possible, the U.S. government should provide technical assistance to the
Iraqi government to prepare a draft oil law that defines the rights of regional
and local governments and creates a fiscal and legal framework for investment.
Legal clarity is essential to attract investment.
* The U.S. government
should encourage the Iraqi government to accelerate contracting for the
comprehensive well work-overs in the southern fields needed to increase
production, but the United States should no longer fund such infrastructure
projects.
* The U.S. military should work with the Iraqi military and
with private security forces to protect oil infrastructure and contractors.
Protective measures could include a program to improve pipeline security by
paying local tribes solely on the basis of throughput (rather than fixed
amounts).
* Metering should be implemented at both ends of the supply
line. This step would immediately improve accountability in the oil
sector.
* In conjunction with the International Monetary Fund, the U.S.
government should press Iraq to continue reducing subsidies in the energy
sector, instead of providing grant assistance.
Until Iraqis pay market
prices for oil products, drastic fuel shortages will remain.
RECOMMENDATION 63:
* The United States should encourage investment
in Iraq's oil sector by the international community and by international energy
companies.
* The United States should assist Iraqi leaders to reorganize
the national oil industry as a commercial enterprise, in order to enhance
efficiency, transparency, and accountability.
* To combat corruption, the
U.S. government should urge the Iraqi government to post all oil contracts,
volumes, and prices on the Web so that Iraqis and outside observers can track
exports and export revenues.
* The United States should support the World
Bank's efforts to ensure that best practices are used in contracting. This
support involves providing Iraqi officials with contracting templates and
training them in contracting, auditing, and reviewing audits.
* The
United States should provide technical assistance to the Ministry of Oil for
enhancing maintenance, improving the payments process, managing cash flows,
contracting and auditing, and updating professional training programs for
management and technical personnel.
Current Spending Bills Advocate
for the White House Benchmarks
1st
War Supplemental [H.R. 1591, the 'U.S. Troop Readiness, Veterans' Care, Katrina
Recovery, and Iraq Accountability Appropriations Act of
2007]
SEC. 1904. (a) The President shall make and transmit to
Congress the following determinations, along with reports in classified and
unclassified form detailing the basis for each determination, on or before July
1, 2007--
(1) whether the Government of Iraq has given United States
Armed Forces and Iraqi Security Forces the authority to pursue all extremists,
including Sunni insurgents and Shiite militias, and is making substantial
progress in delivering necessary Iraqi Security Forces for Baghdad and
protecting such Forces from political interference; intensifying efforts to
build balanced security forces throughout Iraq that provide even-handed security
for all Iraqis; ensuring that Iraq's political authorities are not undermining
or making false accusations against members of the Iraqi Secu |
