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Iraq's Grim Oil Politics
21.12.2006
Newsweek Issues 2007 |
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December 21, 2006
On the way to a surprise visit in Baghdad in
October, U.S. Secretary of State Condoleezza Rice
decided to talk to reporters about oil. "We believe
that oil has to benefit the Iraqi people as a
whole," she said at a press gaggle en route to the
Iraqi capital. In a whirlwind of meetings over the
next two days, she pushed the oil topic again and
again with leaders on all sides—Sunni, Shiite and,
most prominently, Kurdish President Massoud Barzani,
to whom she reinforced her feelings that "oil needs
to be a unifying factor, not one which will help to
make the country less unified." In other words:
please stop fighting and share.
Yet Iraq's sectarian fighting is, to an
extraordinary degree, about the very issue of
sharing oil. The country's political future and its
energy future have converged. The side that wins in
this burgeoning civil war gets control, in theory,
over some $35 billion a year in oil revenue, making
up 90 percent of the Iraqi budget. The side that
loses—well, they fear they won't get anything at
all. And Iraq's daily spasms of violence are closely
tied to
maneuvering over the future control of oil, as well
as rampant oilfield corruption. Oil monies skimmed
off the top are said to be funding the insurgency,
say U.S. officials.
Of the competing plans to resolve the conflict, all
depend on oil. Calls for a federated Iraq, broken up
into three states, are hampered by fears of which
state gets the most oil. The answer is well
known—the Shiites in the southern region have more
than 80 percent of Iraq's proven oil reserves.
Kurdistan, in the north, has access to the fields of
Kirkuk, which have been pumping petroleum since the
1920s. And the Sunnis, the minority that once
dominated and profited from Iraq's black gold, are
stuck in the middle with a desert and lots of sand,
underneath which oil experts expect there is oil,
but no fields are anywhere near being developed.
Oil was supposed to be Iraq's savior, with Bush
administration officials promising that profits from
oil revenues would pay for reconstruction. It was
the Oil Ministry, almost alone among government
buildings, that the U.S. forces protected after the
fall of Baghdad.
But it's turned out to be another factor in the
country's rapid decline. Regular insurgent attacks
on the pipelines and oil facilities—the first three
years saw at least one attack a week on average—have
meant that production is only now reaching prewar
levels. Iraq still has to import a majority of its
fuel. Nearly four years into the war, the country
has had four oil ministers.
A recent study by economist Colin Rowat at the
University of Birmingham revealed that if you factor
out foreign aid, Iraq's GNP is actually $27 billion
less than it should be because of the war. And all
these factors will come to the fore in early 2007,
when the Iraqi Parliament is supposed to pass the
country's new "hydrocarbon law," legislation that
would spell out who gets the oil money now and who
profits from any future discoveries.
The hydrocarbon law, though crucial, is beset by
sectarian backstabbing. Each side has written its
own draft of the law—there are at least three
currently floating around—and the Kurdish draft is
the most professionally done, says a Western
diplomat who advises Iraq's Oil Ministry. Barham
Salih, a Kurd and Iraqi vice president involved in
the bill, says his goal is to make Iraq the Arab
world's first "petro-democracy"; the Kurds have
already cut a deal, independent of the central
government, with a Norwegian firm to start
test-producing oil in the first quarter of 2007.
Another key player involved in writing the
law—Finance Minister Bayan Jabr—is considered one of
the worst sectarian offenders. He was pushed out of
running Iraqi's Interior Ministry in June 2006
because Shiite death- squad activity ballooned under
his watch.
The infighting has also produced a big controversy
over what has not been spent on much-needed
investments.
According to the Western diplomat, in 2005 to 2006
some $3 billion wasn't spent from the Oil Ministry's
budget, and $4 billion to $5 billion wasn't spent in
2003 to 2004. Jabr is also accused of squirreling
away funds for southern Iraq. "We have to take the
power away. We have to pry their hands from the
power," says the Western diplomat.
Indeed, the squabbling over Iraq's oil laws has kept
the biggest international oil companies out of the
country. U.S. and Iraqi officials say they're the
force that is needed to fix Iraqi oil, but without a
legal framework—which they hope the hydrocarbon law
will provide—the companies haven't dared make
significant investments.
According to a U.S. official, who asked to remain
anonymous as a condition for the interview, there
have been at
least 43 memorandums of understanding signed between
Iraq's government and international oil companies.
The MOUs are a way for firms to test the temperature
of the country with a contract that says "let's
cooperate in the future," allowing them to make
technical studies of the production potential in a
nation that holds the world's third largest oil
reserves, many of them largely untapped.
These firms, says the Western diplomat, include all
the "big boys," like ExxonMobil, Chevron and Total.
He says the oil companies have already worked with
the Iraqi government to do independent analyses and
R&D. British Petroleum recently handed over its
yearlong reservoir study of the Rumailah field to
Iraq's Southern Oil Co. It's BP's first piece of
work in Iraq in more than 20 years. The Rumailah
field, referred to as one of the world's super
oil-fields, is still capable of producing more than
1 million barrels a day.
Shell is currently working on an evaluation study in
Kirkuk—a city that still regularly sees massive car
bombings between Kurds, Sunnis and Turkomans, who
all lay claim to the town's ownership. "Major oil
companies are very interested," says Catherine
Hunter, senior energy analyst at Global Insight in
London. "But they're only dipping their toe in the
water."
On a recent trip to Japan to drum up support from
outside investors, Oil Minister Hussein Shahristani
told reporters that international companies were the
only way Iraq could meet its official target: it
aims to attract $20 billion in investment and
increase output to 6 million barrels a day by 2012.
He said Iraq currently produces just under 2.5
million barrels a day, but added, "We are determined
to increase that to 4 to 4.5 million by the end of
2010. But we are also determined to go beyond that
by cooperating with international companies."
He blamed the production declines on sabotage, but
said the ministry is learning to cope. "We've
managed to get
it to be repaired on an average of within 48 hours,"
he said.
For now, Iraq continues to punch well below its
potential weight in global oil markets. At about 2.5
million barrels per day, it contributes just about 2
percent of global output. Iraq's oil affects global
prices minimally on a day-to- day basis, says Vera
de Ladoucette, senior vice president of Cambridge
Energy Research Associates in Paris. And over the
last three years, Iraqi oil officials have
consistently overestimated how quickly they can
bring back production. Yes, there's no doubt about
Iraq's future potential. Analysts say the country
could contribute up to 8 percent of global oil
output by 2020 if all goes well—which means a lot
better than it has done in 2006. But that is
probably expecting too much.
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