LONDON, 21 September 2003 — When Dr. Muhammed-Ali Zainy got to Baghdad on April 26 this year, he was a happy man. “I arrived at night. My feeling was one of ecstasy after 21 years of absence, mixed with some sentiments of sorrow because of the loss of several of my relatives who I was not going to be seeing again.” Zainy, who had been an engineer and official at the Iraqi Ministry of Oil, left for America, where he became a US citizen and worked in the industry in Colorado. While he was away two of his nephews were killed by the Saddam regime. “They were executed because of an informer,” he says.
He returned to Iraq full of hope, and with a purpose. In the months leading up to the war, Zainy, along with a number of other Iraqis, was involved with the State Department in Washington on panels to think ahead about what needed to be done after “shock and awe” had run its course.
Zainy was part of the team looking at Iraq’s oil industry. Degraded by a decade of sanctions, Iraq was producing around 2.4 million barrels a day, compared with the 3.5 million b/d it pumped out before George W’s father went to war in 1991. The task in hand was to help pay for reconstruction by first repairing the war-damaged oil infrastructure, and then get production back up to 1991 levels and beyond.
After the war he was asked to serve as senior adviser to the Iraqi Reconstruction and Development Council, the body charged with overhauling Iraq’s administration and beginning the job of rebuilding.
Other emigre Iraqis, such as Dr. Fadhil Chalabi, Zainy’s colleague at the London-based Center for Global Energy Studies, were unwilling, fearing they would be entering a political game run by America, over which they could have little influence. But Zainy was optimistic. He said at the time: “Well, Muhammed-Ali, maybe this is your moment.” He added: “I feel my country needs me.”
Things did not turn out as he hoped. Five months later he is in London. Owlish and gentle-faced he speaks softly and sadly, but with disarming directness. “I resigned on Sept. 4. I resigned for two reasons: dissatisfaction at the job and the role I played and pressure from my family and friends about the lack of security.
“When we were recruited we were told that we would be advisers in a position to reconstitute and restructure the ministries, and to oversee the reconstruction of the damaged infrastructure.
“When we arrived there we did not assume such positions. We were delegated to subordinate responsibilities. There was an American team that was already established under Gary Vogler, who was the senior adviser who was helping restructure the Ministry of Oil.
“The American Department of Defense took it upon themselves to repair the damaged infrastructure due to the war. They used the Army Corps of Engineers (ACE) and Kellogg Brown & Root (KBR, the Halliburton subsidiary that controversially won the contract to repair damage after the war). Iraqis ended up simply being liaison between the Americans and the Ministry of Oil.” A go-between to convey American orders to the ministry? “Yes.” Zainy says he has no complaints about the professionalism of the US personnel or organizations involved. The ACE and KBR have taken a project management role, involving technicians and engineers from the Iraqi Oil Ministry and oil companies operating both in the North and the South.
KBR has taken on major projects, such as the repair of the Garma Ali water treatment works in Basra, which provide water to the giant Ramallah oil fields, while leaving other work to Iraqis, but this is sensible, he says.
The three-phase plan — to repair damage caused by war and to allow production to get back to around 2.8 million b/d by April — is being executed as well as possible, he believes. Around $1.2 billion have poured in, he says.
Progress has been made. In the north, where damage has been worse, production is running at about 500,000 barrels a day; in the south, just over double that. But sabotage has caused major problems to infrastructure inside and outside the country. Only last week an explosion in the main pipeline running between Iraq and Turkey caused a major fire. Zainy estimates 75 percent of the damage being dealt with is sabotage, something the Americans have gravely underestimated.
Zainy believes the neglect of security is a major US failure. “I was jubilant when they deposed Saddam, I knew Iraqis could never do that themselves. But my disappointment emanates from the fact that somehow they did a great job militarily, but they have not provided security, police, reconstruction and so on.” But he is equivocal about US motives. “I really don’t think the Americans want to control Iraqi oil and eventually the Iraqi Ministry of Oil will take control. Perhaps they just wanted to open up an important Iraqi province as a secure source of oil for the world, and of course for themselves.” But does Zainy believe his treatment undermines American claims they want to involve Iraqis? “Perhaps this is an example, yes,” he says. “But I must also say that I was treated with respect.” He also accepts that a cynic might view America’s concentration on oil as adding weight to claims that that is why it went to war.
“They have involved Bechtel, for example, in other contracts, but it does seem that they have concentrated more on the oil infrastructure,” he says. “I think the Americans gave more importance to the oil sector, believing that this is the only sector that will bring the vital inflow of foreign exchange and contribute to GDP ... and would bring an end to the financial liability on America.” But Zainy remains optimistic, despite the problems so far. Does he believe, like Dr. Chalabi and others, that the industry must be privatized to lever in the investment needed for reconstruction? “Privatization would, in my view, be limited to downstream (building refineries and so on), for example, with joint ventures between the Iraqi oil company and reputable foreign companies.”
Zainy does not believe discussions with Western companies have taken place, but that Exxon, BP and Shell would be natural partners. As for upstream (prior to production) either revenue sharing arrangements or foreign ownership of oil fields is some way off, he believes.
There is a necessity to open up vast unexplored oil fields. Iraq’s 112 billion barrel reserves are the second largest in the world. But simply returning to 1990 levels will take until 2007, at a cost of at least $2 billion. The question after that is how much more than 3.5-3.7 billion b/d Iraq wishes and needs to pump.
Chalabi believes it needs to go up to around 5 million b/d to pay the bills. Zainy disagrees. He believes it would be all right at levels similar to Iran’s (3.7 million b/d), but any more may put undue strains on OPEC. He believes debts and war reparations should be renegotiated before any decision is made.
As for himself, he intends to remain as he is, on the outside looking in, for the foreseeable future.
The conundrum of Iraqi oil production remains central to world oil prices. The market may have calmed down since the war, when concerns over a protracted conflict and relief over its brevity fuelled volatility in the price. As the Center for Global Energy Studies (CGES) in London says: “Iraqi production will remain a key factor influencing oil prices next year.” The center has two scenarios. The first sees no improvement in the security situation in Iraq, with continued sabotage of oil installations and pipelines on which exports depend. Production under this scenario would grow at a “modest” rate — up to around 1.3 million barrels a day in the first quarter. The situation would be compounded, according to the center, if the Organization of Petroleum Exporting Countries did not respond by increasing production quotas. This would result in world oil prices staying at the top end of the $22 to $28 OPEC target range.
But if, as Zainy still hopes, Iraqi production rises, reaching 2.8 million b/d by the first quarter of next year and 3 million b/d by the end of 2004, prices could fall to as low as $22 by the end of the first quarter of 2004, prompting first Saudi Arabia, and then OPEC, to cut production.
