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Iraq's Oil Timeline

by Antonia JuhaszLeft Turn Magazine
May 1st, 2006

“Although the final decision for inviting foreign investment ultimately rests with a representative Iraqi government, I believe in due course the invitation will come.”

—Peter J. Robertson, Chevron Vice Chairman, 2003

Amid all the talk of training Iraqi soldiers, heading off a civil war, and protecting Iraq’s fledging democracy, one overriding agenda has been ignored in the debate over the time-table for bringing US troops home: President Bush will not withdraw US forces until US oil companies have secure access to Iraq’s oil.

The process of securing this access involves four steps. The first, restructuring Iraq from a state to a market-controlled economy, was implemented and well underway within the first few months of the invasion. The second, put into motion with the December 15, 2005 election, is the formation of a legitimate Iraqi government with the authority to, among other things, sign contracts with foreign oil companies. The third step is the completion and passage of a new national Petroleum Law which is set to take place this year. The fourth, having enough security on the ground for US oil companies to get to work, is uncertain, and therefore the timeline for full US troop withdrawal remains unknown.

Prior to the 2003 invasion, foreign companies had limited to no access to the Iraqi market. Only Iraqis or citizens of Arab nations could own a business in Iraq, the oil sector was fully nationalized, and other than a few marketing deals through the UN oil-for-food program, no US companies had oil contracts with Iraq.

Following the invasion, the Bush Administration implemented orders that have the effect of law allowing for the privatization of Iraq’s state-owned enterprises, 100 percent foreign ownership of Iraqi businesses, and repatriation of 100 percent of profits earned in Iraq by foreign companies. These orders were enshrined in the October 15 Iraq constitution. However, knowing that Iraqis would not sit still while the US government overtly privatized their oil industry, the orders specifically excluded the extraction and initial processing of Iraq’s natural resources, including oil. Thus, while the Bush orders laid the groundwork for US corporate access to Iraq, a new national Petroleum Law currently making its way through the Iraqi Parliament will seal the deal.

The new Petroleum Law will be passed by Iraqis, but its roots are in the US State Department’s Future of Iraq Project’s Oil and Energy Working Group. Meeting four times between December 2002 and April 2003, the Group found that Iraq “should be opened to international oil companies as quickly as possible after the war” and that the best method for doing so was through Production Sharing Agreements (PSAs). None of the top oil producers in the Middle East use PSAs because the agreements favor private companies at the expense of the exporting countries. PSAs turn the entire exploration, drilling, and infrastructure building process over to private companies under contracts with terms of twenty-five to forty years that lock in the laws in effect at the time the contract was signed. This means that while a future Iraqi government could change Iraq’s laws, including Bush’s economic orders, its changes would not impact oil contracts signed while the current laws are in effect.

The plans for Iraq’s new Petroleum Law were made public at a press conference in Washington, DC, hosted by the Bush administration. On December 22, 2004, Iraq’s Finance Minister, Adel Abdul Mahdi joined US Undersecretary of State Alan Larson at the National Press Club and announced Iraq’s plans for a new Petroleum Law to open the oil sector to private foreign investment. Mahdi explained, “So I think this is very promising to the American investors and to American enterprise, certainly to oil companies.” He described that, under the proposed law, foreign companies would gain access both to “downstream” and “maybe even upstream” oil investment in Iraq. (“Downstream” refers to refining, distribution, and marketing of oil. “Upstream” refers to exploration and production). A few weeks later, Mahdi became one of Iraq’s deputy presidents and today he is a front-runner to become the new Prime Minister of Iraq.

According to a new report by Greg Muttitt of the London-based research organization Platform, Iraq’s new oil law is set for implementation in 2006. The new law allows for currently producing oil fields—17 out of 80 known fields—to be developed by Iraq’s National Oil Company, while all new fields—63 out of 80 known field—would be opened to private oil companies using PSAs, giving private companies control of at least 64 percent of Iraq’s known reserves. If a further 200 billion barrels of oil are found in Iraq, as Iraq’s Oil Ministry predicts, foreign companies could control 87 percent of Iraq’s oil.

Before new oil contracts could be signed, however, the existing contracts had to be erased. Back in May 2003, Energy Intelligence reported that the US-appointed senior adviser to the Iraqi Oil Ministry, Thamer al-Ghadban, announced that few, if any of the dozens of contracts signed with foreign oil companies under the Hussein regime would be honored. In June 2004, after being appointed Iraq’s Minister of Oil, al-Ghadban told Shell Oil Company’s in-house magazine that 2005 would be the “year of dialogue” with multinational oil companies.

Iraq’s current oil minister, Ibrahim Bahr al Uloum––who served on the US State Department’s Future of Iraq Project’s Oil and Energy Working Group—aims “to begin signing long-term contracts with foreign oil companies during the first nine months of 2006,” according to Platform’s report, “Crude Designs.”

Private foreign oil companies have signed dozens of Memoranda of Understanding (MOU) with the Iraqi government, generally for the training of Iraqi oil staff, consulting work and to perform oil sector studies. For example, Chevron has been flying Iraqi oil engineers to the US free of charge for four-week training courses since early 2004. ExxonMobil signed a MOU with the Oil Ministry in late 2004, laying the groundwork to provide technical assistance and conduct joint studies. In January 2005, BP signed a contract to study the Rumaila oil field near Basra, and Royal Dutch/Shell Group signed an agreement to study the Kirkuk field. Shell is also helping to write a master plan for Iraq’s natural gas sector for free. The purpose of all of these free services and MOUs is for the oil companies to keep a foot in the door and be first in line when the permanent Iraqi government takes over and begins to sign PSAs potentially worth trillions of dollars.

Signing the contracts is just the beginning, the oil companies also need a safe place to work. This is where the US military comes in and it is one very important reason why President Bush refuses to bring our troops home anytime soon.

For the war in Iraq to finally come to an end, the “oil timeline” must be addressed, challenged, and eliminated.