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Oil giants return to iraq


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Oil giants return to iraq

  1. 1. Oil Giants Return To IraqShell, BP, Exxon Mobil and Total set to sign deal with Baghdadby Patrick CockburnNearly four decades after the four biggest Western oil companies were expelled fromIraq by Saddam Hussein, they are negotiating their return. By the end of the month,Royal Dutch Shell, BP, Exxon Mobil and Total will sign agreements with the Baghdadgovernment, Iraqs first with big Western oil firms since the US-led invasion in 2003.The deals are for repair and technical support in some of the countrys largest oilfields,the Oil Ministry in Baghdad said yesterday. The return of "Big Oil" will add to thesuspicions of those in the Middle East who claimed that the overthrow of Saddam wassecretly driven by the Wests desire to gain control of Iraqs oil. It will also be greetedwith dismay by many Iraqis who fear losing control of their vast oil reserves.Iraqs reserves are believed to be second only to Saudi Arabia in the Middle East, buttheir exploitation has long been hampered by UN sanctions, imposed on Iraq afterSaddam Hussein invaded Kuwait in 1990.The major oil companies have been eager to go back to Iraq, but are concerned abouttheir own security and the long-term stability of the country. The two-year no-bidagreements are service agreements that should add another 500,000 barrels of crude aday of output to Iraqs present production of 2.5 million barrels a day (b/d).The companies have the option of being paid in cash or crude oil for the deals, each ofwhich will reportedly be worth $500m (£250m). For Iraq, the agreements are a way ofaccessing foreign expertise immediately, before the Iraqi parliament passes acontroversial new hydrocarbons law.But they mean that the four oil companies, which originally formed the Iraq PetroleumCompany to exploit Iraqi oil from the 1920s until the industrys nationalisation in 1972,will be well-placed to bid for contracts for the long-term development of these fields.The oilfields affected are some of the largest in Iraq, from Kirkuk in the north toRumaila, on the border with Kuwait. Although there is oil in northern Iraq, most of thereserves are close to Basra, in the far south.Since the US invasion, Iraqis have been wary of foreign involvement in their oil industry.Many are convinced that the hidden purpose of the US invasion was to take over Iraqioil, but the Iraqi Oil Minister, Hussein Shahristani, has said that Iraq will hold on to its
  2. 2. natural resources. "If Iraq needs help from international oil companies, they will beinvited to co-operate with the Iraqi National Oil Company [Inoc], on terms andconditions acceptable to Iraq, to generate the highest revenue for Iraq".Inocs technical expertise has deteriorated sharply during the long years of sanctions.Iraq is currently exporting 2.1 million b/d and is expecting to have oil revenues of $70bnthis year, but its government administration is too dysfunctional and corrupt to rebuildthe electricity or water supply systems. The government has $50bn in the Federal Bankof New York.Mr Shahristani has been highly critical of the Kurdistan Regional Government (KRG) forauctioning off oil concessions in Iraqi Kurdistan without reference to the oil ministry inBaghdad. In an interview with The Independent last year, he said Inoc would never dobusiness with any oil company that signed up with the KRG, and he also doubted if theoil could be exported without pipelines. "Are they going to carry it out in buckets?" heasked.Several of the small oil companies who have signed contracts in Kurdistan are hopingthat in the long term there will be an agreement between the Kurds and the centralgovernment and they will then sell out to the majors at a large profit.The technical support agreements, as the service agreements are known, may open thedoor to Iraq for the majors. Mr Shahristani has said that Iraq will open up the samefields for bidding for long-term development projects soon. "Were going to announcethe first licensing round by the end of this month or early next month," he said.The high price of oil means that Iraq is not under immediate pressure to maximise its oilrevenues. The Iraqi parliament has suspected anything which looks like giving foreigncompanies ownership of Iraqs oil through a production sharing agreement.The nationalisation of Iraqs oil is one the few acts of Saddam Husseins long years inpower which is still highly popular, and Iraqi members of parliament are fearful ofanything that looks like back-door privatisation in the interests of foreigners.Big four have history of controlFor the four oil giants, the new agreements will bring them back to a country wherethey have a long history. BP, Exxon Mobil, Total and Shell were co-owners of a British,American and French consortium that kept Iraqs oil reserves in foreign control for morethan 40 years.
  3. 3. The Iraq Petroleum Company (once the Turkish Petroleum Company) was formed in1912 by oil companies eager to grab the resources in parts of the Ottoman Empire.The company was formalised in 1928 and each of the four shareholders had a 23.75 percent share of all the oil produced. The final 5 per cent went to Calouste Gulbenkian, anArmenian businessman.In 1931, an agreement was signed with Iraq, giving the company complete control overthe oi fields of Mosul in return for annual royalties. After Saddams coup in 1958,nationalisation came in 1972.