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A journey through growing ripples of Iraqi
Oil Industry from the collapse of Othman empire
to...
21.12.2009
By Harem Karem, regular contributing writer for
ekurd.net
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A
journey through growing ripples of Iraqi Oil
Industry from the collapse of Othman empire to the
US led invasion of Iraq and the separation of
Kurdistan.
December 21, 2009
Harem Karem,
(ekurd.net), — The
struggle for Iraqi oil started at the beginning of
the last century and it played a central role in the
occupation of the country by the British in 1917.
After the defeat of the Othman Empire in World War 1
Britain wanted to assert its influence over what was
known as Mesopotamia, the provinces of the defunct
Othman empire that would later be known as Iraq.
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Harem Karem
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France which had claims to Mosul agreed to
compromise this claim in return to the British
recognition of her control of Syria.
A concession was granted to the Turkish petroleum
Co, later renamed into the Iraq petroleum Co. The
interests of the then dominant world powers were
reflected in the division of this company’s shares.
• BP (British) 23.75%
• Royal Dutch Shell 23.75%
• Standard Oil (ESSO) 11.875%
• Socony Vacuum (Mobile) 11.875%
• The CEP (French) 23.75%
• And 5% to the Armenian banker (Known later as Mr
5%)
Later on two other concessions were granted to the
Mosul PC and Basra PC. The three companies
controlled the whole geographical area of Iraq.
The first actual production started by IPC when the
giant BABA GURGUR field was struck by the IPC. Iraq
was to get four shillings for every ton of its oil.
After the end of the World War 2 the Iraqi
production was kept low because of the discovery of
oil in Kuwait and Saudi Arabia. However after the
nationalisation of the Iranian Oil in 1952 by the
government of Musaddeq, the companies made up for
their losses by raising the Iraqi output.
Because of this and because of the adoption of the
principles of the 50-50 sharing between Aramco and
the Kingdom of Saudi Arabia, the same principle was
adopted by the IPC and its subsidiaries in Iraq
which witnessed an “Oil Boom” between that time and
1958.
When the monarchy was overthrown in that year, the
new regime started comprehensive negotiation with
the oil companies which involves a number of demands
to correct the relations between the two sides by
taking the new realities into consideration,
especially raising the production, expensing the
royalties, participation in the capital of the
companies etc.
Faced with the adamant refusal of the companies,
Iraq unilaterally issued a legislation to recover
all the hither to unexploited territories, which
accounted 99.5% of the whole area of Iraq. These
same issues constituted the basis for the
negotiations which were resumed between the two
sides after 1968 and ultimately led to the
nationalisation of June 1972 and later.
Following the October 1973 Arab Israel war and the
subsequent Arab oil embargo which shot up the oil
prices from $3 per barrel to more than £10, Iraq
witnessed a second boom which resulted with raising
the production to 3-5 MBD by 1979 and the discovery
of important new giant fields.
However, the entanglement of the country in
successive wars and sanctions under Saddam’s regime
led to the devastation of the oil industry and its
infrastructure. The situation was further
exacerbated by the U.S led invasion of 2003 which
lowered the exports to 1.5 - 2 MBD,www.ekurd.netleading
to drastic consequences to the national economy
which depends heavily on oil.
However, in the light of imminent global shortage of
oil supplies, the international majors have signed
contract with the Iraqi government to increase the
output of the currently producing super-giant fields
by 6 MBD which together with the existing capacities
will raise the production to more than 7 MBD.
Together with the project second round of BDS Iraq’s
output is expected to go up to 10 – 12 MBD in the
next decade making it the second or third global
exporter.
Iraq was a founding member of the cartel of the
organisation of petroleum exporting countries (OPEC)
and was among the first oil producing countries to
nationalize some of its oil fields.
The present author would also like to discuss the
upstream hydrocarbon opportunities and challenges in
Kurdistan Region. There’s no denying the evidence
that Kurdistan contains oceans of oil. Kurdistan
stated proven oil reserve of over 40 billion
barrels.
Kurdistan regional Government (KRG) has started to
sign contracts with foreign companies and passed a
law inside its territory asserting that any oil and
gas revenues from these new deals would stay in its
own province rather than Iraq. The KRG oil law paves
the way for production-sharing agreements (PSA) with
international oil companies. This attracted many oil
explorers like DNO, Addax, Genel and OMV who
continue to invest in field development in
Kurdistan.
The KRG law asserts Kurdistan’s constitutional right
to directly receive revenue from future fields but
also claims a right to retain a share of revenues
from existing fields unless there is an agreement in
place with the government of Iraq under which
Kurdistan receives a proportionate share of revenues
and compensation for damage and denial of petroleum
revenues by the former regime.
The present author believes that the future of
Kurdistan’s oil industry in particular and Iraq in
general faces tough challenges in terms of
exportation as the national pipeline can only
deliver 2.5 MBD. As mentioned above within the next
decade the output expected to go up to 10 – 12 MBD
and there is a huge demand for a new pipeline to be
installed.
The stability and security of the country is another
concern to the oil industry, while the neighbouring
countries such as Saudi Arabia, Turkey, Iran and
Syria are playing a vital role in supporting the
terrorist groups in order to prevent Iraq from
standing on its feet for obvious reasons.
Resolving the current disagreement between the Iraqi
Government and Kurdistan Regional Government over
the Hydrocarbon laws will be the main priority as
the Kurdistan Regional Government (KRG) has accused
the Iraqi oil ministry of its auction of six oil
fields as a violation of the Iraqi constitution
earlier this year and also two of the six fields are
violation of the Kurdistan’s oil and gas law. Kirkuk
“BABA GURGUR” and Bai Hassan oil fields are both
located in the disputed territories as defined by
Article 140 of the Constitution any decision related
to these fields requires the direct involvement of
the KRG. However the KRG has shown an aggressive
strategy for exploiting its own oil and gas fields
and this has led the KRG into conflict with the
Iraqi oil ministry”.
By Harem Karem, Portsmouth, United Kingdom
References:
• “The Prize” The Epic quest for Oil, Money and
Power
• “Iraq from Monarchy to tyranny”
• Iraq status report http://www.state.gov
• Global Policy Forum www.globalpolicy.org
• The international petroleum cartel
Harem Karem, freelance writer
and
a regular contributing writer for ekurd.net website.
You may reach the author via email at: harem2000
(at) hotmail.com
Copyright © 2009 ekurd.net. All rights reserved
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