Agreement on New Iraq Oil Law

There does not seem to be much media coverage of this important law. I suppose this might be because the Iraq war is not supposed to be about oil!


Iraqi factions agree on draft oil law
Monday, January 8, 2007
MELİS ŞENERDEMISTANBUL - Referans
As the world still debates the execution of deposed Iraqi President Saddam Hussein, it has been revealed that the Iraqi government is preparing to send to Parliament important arrangements on how the country's oil resources are to be carved up.
Proposed new arrangements have been frozen since 2003 because of disagreement between Kurdish, Shiite Arab and Sunni Arab groups.
The draft oil law foresees transfer of the exploitation of oil fields, nationalized by the Baath government in 1972, to oil companies via 30-year privileged contracts. The draft is expected to be voted into law this week, and Shiite, Sunni and Kurdish factions have agreed on the text on Christmas day, after three and a half months of debate.
According to Referans sources, a meeting was held in London over the weekend in which Vice Prime Minister Berham Salih attended, representing Iraq. His counterparts included representatives of big oil companies. The fact that Salih, a Kurd who is also the president of the Iraq Oil Committee, is active in the process has been interpreted as a sign that Kurds have been persuaded for a national, not regional, arrangement.
However, after the national agreement is implemented Kurds will start to prepare a similar arrangement in their own region, a source close to the talks told Referans on condition of anonymity. This new agreement will be in accordance with the draft which will soon be on the parliamentary agenda.

Advantages to oil giants:
The Independent on Sunday revealed the text of the draft law, which is expected to be put into effect as of March 2007. The British newspaper wrote in its headline story, “Future of Iraq: The Spoils of War,” that the world's oil giants now have an important chance to be active in Iraq, three years after the invasion.
Moreover, the companies will have the right to retain 75 percent of their annual income from Iraqi oilfields, until they match their oil production costs, thanks to the Production Sharing Agreement (PSA) system. After then the companies will be able to pocket 20 percent of the annual income. Experts point to the fact that this is double normal market rates.
Unsurprisingly, the U.S. government played a major role in the preparation of the draft. The lion's share in the PSAs will go to giants such as BP, Shell and ExxonMobil.
The Independent on Sunday commented that if the draft is voted into law, previous promises that “the oil of Iraq will belong to the Iraqi people” will prove to be false.
Iraq, ranked third in the world for oil reserves, has proven resources of 112.5 billion barrels, while the total reserves are estimated at 220 billion barrels.

Old agreements to be served:
The same sources told Referans that the draft envisions the continuation of agreements that the previous Iraqi governments signed with various companies. Still, these agreements will have to be brought into line with new regulations.
Companies, including some Turkish ones, signed various agreements with Baghdad before and after the 2003 invasion. Saddam Hussein, who planned to diminish U.S. influence over decisions in his country, signed oil deals with many companies, including Russian Lukoil, Chinese CNPC and French TotalFinaElf.
In the 1997 agreements Lukoil received the right to develop the West Qurna oilfield, while CNPC obtained a similar right at Ahdab in western Iraq and TotalFinaElf at Majnun in southern Iraq. However, because of U.N. sanctions, these agreements failed to be realized.
Lukoil has a privileged right in the West Qurna oilfield, but U.S. firm ConocoPhillips also has a 17.5 percent stake there.