The Iraq War: US attempts to control oil.

From Yemen Observer Newspaper (yobserver.com)

No doubt it is not just US oil companies that will profit under the oil law. All the internationals will profit with US and UK based firms having an inside track. It is interesting that Iraq is the only Mid-east country to use PSA's. Of course the justification will be that lack of security makes them necessary. However the the terms are for up to thirty years. The lack of security is a good excuse for PSA's but makes them no less a bad deal. Until security improves there is not likely to be much investment anyway but the PSA's will still be on the books when it improves.



Opinions
U.S.-tailored Iraqi oil alarm for producers, consumers
By Nicola Nasser*
Jan 27, 2007, 17:10




While the Iraqis were busy counting their death toll of more than 650,000 since March 2003. The United Nations is next with 34,000 dead in 2006 alone with 3,070 for the Pentagon. The U.S. treasury was counting the more than $600 billion of taxpayer money spent in Iraq so far, stealthily and suddenly. The U.S. occupation’s oil prize sounded louder than war drums to alert the regional oil producers as well as the major world consumers to guard against the looming threat coming out of Iraq. After listening to the monotonous and incredible U.S. lies for four years about how “we are not there for Iraq’s oil,” the oily truth is now unfolding.

Without a decisive military victory, the U.S. occupation of Iraq seems to be about to grab its oil prize by establishing a new sharing arrangement between a major national producer and the multi-national giants—an arrangement that Washington plans to set as the model to be followed both by the oil-rich region and the world at large. This prize has been the dream of successive U.S. administrations: on January 18th, they came one step closer to reality when Iraq’s Oil Committee approved the new draft hydrocarbon law, sent it to the cabinet within a week and, when approved, will go to the parliament immediately thereafter.

The early draft of the law was prepared by BearingPoint American consultants, hired by the Bush administration, and sent to the White House and major Western petroleum corporations in July, and then to the International Monetary Fund two months later, while most Iraqi legislators and the public remained in the dark.

The approved production-sharing agreements (PSAs) favor investing foreign oil companies with 70 percent of oil revenue to recoup their initial outlay, then companies can reap 20 percent of the profit without any tax or other restrictions on their transfers abroad.

Iraqi Oil File Opened
Several indicators have surfaced recently that point to bringing the oil factor in Iraq back from the back burner to the forefront of the public eye. The first was Ankara’s escalating drive to block the control of the northern Iraqi oil city of Kirkuk by the Iraqi Kurds, lest Kirkuk’s lucrative oil be used to fund a bid for secession from Iraq that could encourage separatist Kurdish guerrillas in Turkey herself.

The second indicator is Iraq’s push forward on oil developments with Iran and Kuwait to determine control in the future of the cross-border oil fields, according to the Kuwait Times. Cross-border oil fields were contested and have been a cause of friction poisoning Iraq’s relations with its eastern and southern neighbors. A third indicator that the Iraqi oil file is being opened wide is the Iraqi - Syrian negotiations on the sidelines of the latest visit to Damascus by Iraqi President Jalal Talabani to reopen the oil pipeline between the northern Iraqi city of Kirkuk and the Syrian coastal town of Banyas on the Mediterranean.

This pipeline was reopened in 1997 and drew U.S. disapproval; American air strikes damaged the Iraqi side of the pipeline at the start of the U.S.-led invasion. Since then, Washington was reported to favor reopening a Kirkuk-Haifa oil pipeline via Jordan, which was shut down after the creation of Israel in 1948. However the new Iraqi draft Hydrocarbon Law, if passed by the Iraqi parliament, would be a milestone not only to judge the U.S.-British invasion of Iraq as a success or a failure, but would more importantly determine the future network of relations between the oil-producing countries and the multi-national oil giants, to the detriment of the major consumers who will be held hostage to the whims of the American holder of the key to vital Middle Eastern oil resources.

President George W. Bush in his “New Strategy” speech on January 10th sounded ambiguous and elusive in his definition of the success he is hunting for in Iraq. “A successful strategy for Iraq goes beyond military operations,” he said, adding: “Victory ... in Iraq will bring something new in the Arab world.” Bush stopped short of explicitly defining success and victory as economic in a framework that has an oil breakthrough at its core. In his speech Bush referred to oil twice, and only briefly.

A failure of the U.S. in Iraq would enable the “Radical Islamic extremists” to “use oil revenues ... to topple moderate governments” across the region, he warned, and announced that “Iraq will pass legislation to share oil revenues among all Iraqis,” without even a hint to any U.S. interest, because he was very well aware of the hornet nest he would unleash had he prematurely even hinted at his oil prize.

Republican-Democratic Consensus
The Republican-Democratic electoral wrangling, no matter how ferocious it was or would become over internal issues, could not cross a “red line” consensus on never compromising the U.S. national oil strategic interests, which both parties are determined to defend regardless of how much American or non-American blood would spill in their defense.

The bipartisan Iraq Study Group Report articulated that consensus concisely in straightforward language. It is noteworthy that Bush, who ignored the essential recommendations of this report, had selectively adopted recommendations 62 and 63. Recommendation 63 stipulates the US should “assist” Iraqi leaders in privatizing the national oil industry into a “commercial enterprise” to encourage investment by the multi-national oil companies. Recommendation 62 urges the US government to help draft an Iraqi oil law that “creates a fiscal and legal framework for investment” and, in conjunction with the International Monetary Fund, to “press Iraq to continue reducing subsidies in the energy sector...until Iraqis pay market prices for oil products.”

The James Baker – Lee Hamilton Report proposes to make everyday life harder for average Iraqis so that the U.S. oil industry profits. The Bush administration, even before the 2003 invasion, planned to pass a new oil law for Iraq that would turn its nationalized oil system over to private foreign corporate control. Months after the U.S. invasion of Iraq, it was revealed that control of Iraq’s oil fields was one of the chief issues discussed in Vice President Dick Cheney’s Energy Task Force meeting with oil executives in 2001. Bush made his first public demand of the Iraqi government to pass the oil law in December. Secretary of State Condoleezza Rice, U.S. ambassador to Iraq Zalmay Khalilzad and General George W. Casey Jr., the senior American commander in Iraq, repeated the same demand.

In July last year, Energy Secretary Sam Bodman announced in Baghdad that senior U.S. oil company executives would not enter Iraq without passage of the new law. Petroleum Economist magazine later reported that U.S. oil companies put passage of the oil law before security concerns as the deciding factor over their entry into Iraq. Passing an oil law has also been a key demand of the United States in providing further military support to Baghdad’s “national unity government.”

Iraqis in the Dark
This law has been in the works even months before the invasion, when the Bush Administration brought in Phillip Carroll, former CEO of both Shell and Fluor, to devise “contingency plans” to pump the Iraqi oil after the invasion; Carroll was later made the head of the American “Advisory Committee” overseeing the oil industry of the conquered land.

The U.S., the IMF, and the major oil giants are using fear to pursue their agenda of privatizing and selling off Iraq’s oil resources. They are taking advantage of an occupied, war-ravaged and internally divided nation to get control over as much oil as possible, on the best possible terms, and to get what they were denied before the war or at anytime in modern Iraqi history: access to Iraq’s oil under the ground, Iraqi academic and senior lecturer in Middle East economics at the University of Exeter, Kamil Mahdi, wrote recently. Most Iraqis remain in the dark about the new oil law.

Iraq’s oil workers had to travel to Jordan to learn details of the law from the London-based research organization Platform. As a result, five Iraqi trade union federations released a public statement rejecting “the handing of control over oil to foreign companies, whose aim is to make big profits at the expense of the Iraqi people, and to rob the national wealth, according to unfair, long-term contracts that undermine the sovereignty of the state and the dignity of the Iraqi people.”

The statement added that this was a “red line” they would not allow to be crossed. Washington has been unsuccessfully trying to camouflage her oil prize in Iraq since its invasion in 2003 and similarly she can hardly now smokescreen the oil factor in her escalating crisis with Iran. “Weapons of mass destruction” or “links to al-Qaeda” were not the true reasons for the U.S.-British invasion of Iraq as much as the real reason for the present U.S.-Iran crisis is not about Iran’s “nukes.” In both cases regime change was the goal, which if achieved could give Washington an access to almost 20 percent of the world’s proven Iraqi and Iranian oil reserves, respectively the third and fourth largest in the world.

Iran the Next Target
Iraqi and Iranian oil reserves are targeted per se, but clinching these assets out of national decision-making would also give Washington control over about 60 percent of the world’s conventional oil reserves located in essentially five countries in the Arabian Gulf region (described officially by Iran as “Persian”). Iran’s close proximity to these major oil resources and her balancing power in controlling access to them have made her the second major obstacle after Iraq that could block any U.S. strategic drive to gain control over them. In 2003, about 90% of oil exported from the Gulf transited by tanker through the Strait of Hormuz, located between Oman and Iran.

The Iraqi bill would allow for the first foreign exploitation of Iraqi oil reserves since the industry was nationalized in 1972. The introduction of PSAs would also be a first in the Middle East. Washington wants the Iraqi law to be the rule that has to apply across the oil-rich region as well as worldwide. Most members of the Organization of Petroleum Exporting Countries (OPEC) nationally control their oil industries through state-owned companies with no appreciable foreign collaboration.

Such an arrangement was impossible to pass through during the bi-polar world order, but has become possible following the collapse of the former USSR if the American uni-polar power could rein in the remnants of the ruling national liberation movements, or could topple them. Only within this context can the invasion and occupation of Iraq as well as the current U.S.-Iranian crisis be perceived. Since 1972 and 1979 respectively the U.S. was denied the banana-republic’s styled free hand over Iraqi and Iranian oil assets. Iraq was invaded and occupied while a regime change that would secure U.S. control is still in the works.

Meanwhile Iran is being pressured and threatened with more sanctions and a U.S. military strike to change the regime in Tehran. The more vulnerable regional oil producers, as well as their counterparts in Central Asia, would be wiser to do their best not to allow the draft Iraqi law to pass to be the future yardstick to determine their relations with the multi-national oil giants, and to pre-empt a political and military environment synonymous with the one prevailing now in Iraq to be copied in Iran, which would inevitably lead to a gradual erosion or abrupt end to their beneficial current arrangements.

Voluntarily or grudgingly getting along with Bush’s old or “new” strategies, would never spare them. They should reconsider because Iraq was the first target and they are now the next targets. Iran also should reconsider Iraq because she is the next target. Major oil consumers in China, Japan and Europe should also be alerted to avert a possible suffocating U.S. monopoly or hegemony on oil resources at a time that their (as well as the American) demand for oil is on the rise; their economic competition or cooperation with the U.S. will only be adversely compromised by Washington’s grip on the vital mineral resource that is driving their industrial economies.

*Nicola Nasser is a veteran Arab journalist based in Ramallah, West Bank of the Israeli-occupied Palestinian territories.

Iraq struggles to finish oil law

This article does not go into any detail about the PSA (production sharing agreements) outlined in the new law. The terms are very generous to the oil companies and can be up to thirty years. My understanding is that no other mid-east oil producer use PSA's since they benefit oil companies more than the host country. Russia has just rejected a PSA that they had with Shell--supposedly on environmental grounds but more likely because it did not like the terms of the contract.


Iraq Struggles to Finish Oil Law
Forging an Agreement Requires Balancing Sharply Divided Interests, Ethnic Groups

By Steven Mufson
Washington Post Staff Writer
Wednesday, January 24, 2007; D01



Four months ago, about 80 oil company executives and consultants packed an office on St. James's Square in London for a briefing on exploration prospects in Iraq's Kurdish region and a Kurdish draft of an Iraqi national petroleum law.

Despite the immense risks of working in Iraq -- pipeline explosions, kidnappings, insurgency, political infighting -- the oil company executives were lured by the potential rewards, which are immense, too. Outside Saudi Arabia, no country has proven oil reserves as big as Iraq's. And the oil there is high quality, easy and cheap to produce, and bottled up in reservoirs that many major oil companies were familiar with three decades ago before wars and sanctions drove them out.

"Exxon Mobil has more seismic data on Iraq than on Houston real estate," says Fadel Gheit, an oil analyst at Oppenheimer & Co. who used to work for Mobil. "If Exxon had security on the ground, the following day it would have crews there," Gheit said. "And money would be no object."

Gheit estimated that Iraq could easily produce 6 million barrels a day, more than three times its current output and enough to help keep a lid on world prices.

Four months after the London meeting, however, security remains elusive and so does the national petroleum law. Barham Saleh, Iraq's deputy prime minister, said in a recent telephone interview that a compromise was "very, very close."

The proposed law has taken on significance beyond oil. While Iraq and foreign oil companies are eager to tap new revenue, the Bush administration and many Iraqis also hope that the law can be a model for resolving disputes and can bind Iraq's warring factions together.

Agreement has been reached on sharing oil revenue on a per-capita basis, a benefit for Sunnis who live mostly in areas with less production. A deal also has been struck that recognizes the power of regional authorities, such as the Kurdish Regional Government, to award oil contracts, but establishes a national petroleum commission with the power to review contracts within 60 days. A "revamped" national oil company would continue to manage existing production while new regional affiliates would participate in new exploration and production.

"We need to close the deal on one or two small issues," Saleh said. "A number of the major issues have been resolved."

But an adviser to the Kurdish authorities said those "small issues" included some significant details. On Friday, the Kurdistan Regional Government posted an item on its Web site denying news reports that a deal was complete. The "important annexes to the law are still pending," it said.

Outstanding issues include how much oil revenue will go to the central government; a charter for the new national oil company; the role of the oil ministry; and the principles upon which the new commission could reject regionally negotiated contracts. Also unsettled is whether the commission will require a simple majority vote or a two-thirds vote to reject a contract's terms. Those provisions must all be part of one package with the petroleum law, Kurdish leaders said.

If the Shia-dominated Iraqi central government spends heavily on its own projects, it could deny the Kurds and other regional authorities significant shares of oil revenue.

Even if negotiators agree on a draft, it must win approval from Iraq's cabinet and fractious parliament, which hasn't met in weeks.

The United States has been pressing Iraq to complete the law. "As awful as the Saddam Hussein government was, it did have a record of dealing with foreign investors that wasn't that bad," said James A. Placke, an expert at Cambridge Energy Research Associates. "That's gone and hasn't been replaced."

Now, forging a petroleum law requires a balancing of sharply divided interest and ethnic groups, not just the word of a dictator.

"This is not a regular piece of Iraqi legislation being signed off on," said Jonathan Morrow, an adviser to the Kurdistan Regional Government. If successful, he said, "it . . . might show the way forward in Iraq."

Saleh suggested that a deal might discourage attacks on oil installations and reduce corruption. "Since we all agree on revenue sharing, all elements of Iraqi society will have an interest in maximizing revenues and best business practices," he said.

For now, however, the oil sector is a mess. Since the first attack on a pipeline on June 1, 2003, it has been a struggle to keep oil flowing. Basic production equipment has been looted or destroyed. Many wells still are not working properly. And last year, the U.S. special inspector general for Iraq reconstruction complained that Iraq's oil ministry was not reporting on its budget and had spent "only a fraction" of money set aside for capital costs.

While the Bush administration once thought that Iraqi oil revenue would cover occupation and reconstruction costs, the Iraq government still relies heavily on U.S. technical and financial aid. Placke estimated that Iraq produced 1.85 million barrels a day last year, less than the year before, less than the prewar output and well below the U.S. target of 3 million barrels a day.

Placke, who was part of the Iraq Study Group, estimated that 200,000 barrels a day is siphoned from the main export line through southern Iraq, put on barges, and loaded onto tankers waiting in the Persian Gulf. What's left after discounts and bribes goes to militias or insurgent groups, he said.

In the south, some local Shia militia, clan or clerical groups are trying to claim the rights to some Iraqi fields and a voice in negotiating access for foreign companies. A stake in a billion-barrel field could be more important than a stake in the parliament or cabinet. Some experts worry that, as in Sudan, oil could contribute more to tearing the country apart than to uniting it.

A senior Iraqi government official involved in the petroleum-law talks said that if militias and clans were to cut separate deals with foreign companies, it would be a "recipe for disaster and civil war." He warned foreign companies against signing such deals. "We are very interested in credible investment in the oil sector," he said. "We cannot afford to have these cowboys running around trying to manipulate the situation in Iraq."

The national petroleum law remains a touchy subject in part because of widespread suspicion that the U.S. invasion in 2003 was motivated by designs on Iraq's oil riches.

The Iraq Study Group report contained three pages of recommendations for the sector, including suggestions that international oil companies invest in the country and the government fight corruption on contracts.

"Before embarking on controversial measures such as this law favoring foreign oil firms, the Iraqi parliament and government must prove that they are capable of protecting the country's sovereignty," Kamil Mahdi, a senior lecturer in Middle East economics at the University of Exeter in England, wrote in the Guardian newspaper. "A government that is failing to protect the lives of its citizens must not embark on controversial legislation that ties the hands of future Iraqi leaders, and which threatens to squander the Iraqis' precious, exhaustible resource in an orgy of waste, corruption and theft."

In a telephone interview, Mahdi said, "My main worry is that if I were an official in the ministry of oil negotiating a contract and living under the kind of threats that people in Iraq are daily experiencing, I would probably be in a very weak negotiating position."

While the debate continues, the Kurdistan Regional Government is pushing ahead. In 2002, at the suggestion of Jalal Talabani, the Kurdish leader who is now Iraq's president, the Turkish conglomerate Cukurova Group set up an oil unit called Genel Enerji to look for oil in Kurdistan. Genel signed a production-sharing agreement in July 2002 and took over the Taq Taq oil field in February 2003 on the eve of the U.S-led invasion. It signed another exploration contract in July 2005. A Norwegian firm, DNO, and a Canadian firm, Heritage Oil, also struck exploration and production deals in the Kurdish region.

Tariq Shafiq, a former executive of Iraq National Oil and director of the consulting firm Petrolog & Associates, has drawn up three contracts -- service, buyback and production-sharing -- that the government will use in its new petroleum law. He said the Kurdish production-sharing contracts give away too much to the foreign companies; he said that after paying for capital and operations costs, as much as 55 percent of the oil goes to the foreign firms. "These, in the eye of many, are illegal and would have to undergo review to bring them in line with this law," he said.

But Kurdish authorities said they have no intention of submitting existing contracts for review. Duran said Genel's contract was renegotiated last November and falls within the 20 percent share production that would be the ceiling under the new law. "The commercial terms of the PSA are in conformity with internationally acceptable PSA terms," Duran said in an e-mail response to questions. "Therefore, our PSA is not generous at all."

Major U.S. oil companies haven't signed any contracts in Kurdistan yet. Some of them have tried to build goodwill with the central government. Chevron, for example, helped clear mines from the coastline. Others have collected seismic data or trained Iraqi oil company technicians in Dubai.

Some major companies from other nations -- Russia's Lukoil, a Chinese state company, France's Total -- are hoping to get their big Hussein-era concessions back. Their prospects remain uncertain.