Oil giants return to Iraq

Shell, BP, Exxon Mobil and Total set to sign deal with Baghdad

Patrick Cockburn
Friday 20 June 2008 00:00
Comments
A US soldier stands guard in front of an Iraqi oil refinery near Baiji
A US soldier stands guard in front of an Iraqi oil refinery near Baiji

Nearly four decades after the four biggest Western oil companies were expelled from Iraq 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 Baghdad government, Iraq's 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 country's largest oilfields, the Oil Ministry in Baghdad said yesterday. The return of "Big Oil" will add to the suspicions of those in the Middle East who claimed that the overthrow of Saddam was secretly driven by the West's desire to gain control of Iraq's oil. It will also be greeted with dismay by many Iraqis who fear losing control of their vast oil reserves.

Iraq's reserves are believed to be second only to Saudi Arabia in the Middle East, but their exploitation has long been hampered by UN sanctions, imposed on Iraq after Saddam Hussein invaded Kuwait in 1990.

The major oil companies have been eager to go back to Iraq, but are concerned about their own security and the long-term stability of the country. The two-year no-bid agreements are service agreements that should add another 500,000 barrels of crude a day of output to Iraq's 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 of which will reportedly be worth $500m (£250m). For Iraq, the agreements are a way of accessing foreign expertise immediately, before the Iraqi parliament passes a controversial new hydrocarbons law.

But they mean that the four oil companies, which originally formed the Iraq Petroleum Company to exploit Iraqi oil from the 1920s until the industry's 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 to Rumaila, on the border with Kuwait. Although there is oil in northern Iraq, most of the reserves 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 Iraqi oil, but the Iraqi Oil Minister, Hussein Shahristani, has said that Iraq will hold on to its natural resources. "If Iraq needs help from international oil companies, they will be invited to co-operate with the Iraqi National Oil Company [Inoc], on terms and conditions acceptable to Iraq, to generate the highest revenue for Iraq".

Inoc's 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 $70bn this year, but its government administration is too dysfunctional and corrupt to rebuild the electricity or water supply systems. The government has $50bn in the Federal Bank of New York.

Mr Shahristani has been highly critical of the Kurdistan Regional Government (KRG) for auctioning off oil concessions in Iraqi Kurdistan without reference to the oil ministry in Baghdad. In an interview with The Independent last year, he said Inoc would never do business with any oil company that signed up with the KRG, and he also doubted if the oil could be exported without pipelines. "Are they going to carry it out in buckets?" he asked.

Several of the small oil companies who have signed contracts in Kurdistan are hoping that in the long term there will be an agreement between the Kurds and the central government 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 the door to Iraq for the majors. Mr Shahristani has said that Iraq will open up the same fields for bidding for long-term development projects soon. "We're going to announce the 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 oil revenues. The Iraqi parliament has suspected anything which looks like giving foreign companies ownership of Iraq's oil through a production sharing agreement.

The nationalisation of Iraq's oil is one the few acts of Saddam Hussein's long years in power which is still highly popular, and Iraqi members of parliament are fearful of anything that looks like back-door privatisation in the interests of foreigners.

Big four have history of control

For the four oil giants, the new agreements will bring them back to a country where they have a long history. BP, Exxon Mobil, Total and Shell were co-owners of a British, American and French consortium that kept Iraq's oil reserves in foreign control for more than 40 years.

The Iraq Petroleum Company (once the Turkish Petroleum Company) was formed in 1912 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 per cent share of all the oil produced. The final 5 per cent went to Calouste Gulbenkian, an Armenian businessman.

In 1931, an agreement was signed with Iraq, giving the company complete control over the oi fields of Mosul in return for annual royalties. After Saddam's coup in 1958, nationalisation came in 1972.

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Please enter a valid email
Please enter a valid email
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Please enter your first name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
Please enter your last name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
You must be over 18 years old to register
You must be over 18 years old to register
Opt-out-policy
You can opt-out at any time by signing in to your account to manage your preferences. Each email has a link to unsubscribe.

By clicking ‘Create my account’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Join our new commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in