THE significance of the success of China’s state-owned CNPC in winning the first big oil contract awarded by the Iraqi government is not yet clear. Some analysts believe the $3 billion 20-year deal to develop and run the Ahdab field in Wasit province, 100 miles south of Baghdad, is a worrying marker for Western oil majors jockeying for position to win other contracts to develop Iraq’s oil and gas fields and neglected hydrocarbon infrastructure. Though the full details are not yet released, the Chinese appear to have accepted far tougher terms over the field than that originally negotiated in 1997 with Saddam Hussein.
Most important, this new contract is not a production-sharing deal. The $3 billion will cover a services fee. Much of the production will also be used to power a new 1,320 MW power station that will produce much needed energy for Iraqis. The bonus for the Chinese is that this new generating capacity will also be built by the Chinese under a separate contract. It is this linked deal that makes some pundits think that the Ahdab contract may not be a template for contracts for other fields expected to start being signed later this year.
It is worth wondering if the US-led occupying powers encouraged the Nuri Al-Maliki government to strike the first oil deal with the Chinese, as a way of diverting attention away from the strong and justified international belief that Bush’s Iraq invasion was all about blood for oil with the “democratic freedoms” of Iraqis used as a smokescreen. Can anyone assume that Iraqi Oil Minister Hussain Al-Shahristani, in driving such a relatively hard bargain with the Chinese, is making it clear to Western oil majors that the carpet-bagging bonanza they may have expected after Saddam’s ouster is not simply going to happen?
True, in a still energy-hungry world, Iraq has leverage over US oil companies because no country is hungrier for energy than China. Beijing will be working on the calculation that by participating in Iraq’s hydrocarbon renaissance, it will enjoy favorable access to its oil, albeit quite rightly at market prices.
While US politicians may talk of independence from oil supplies from what they choose to characterize as “unstable” producing countries (ignoring its own role in creating that instability), the Europeans, recoiling in alarm from a no longer entirely benign Russia, are casting around for alternative supplies.
The good will generated by signing deals that are advantageous to the Iraqis are, along with the fee income, likely to be the best that the independent majors can hope from Baghdad.
Majors may not like merely service contracts, but there are other national oil companies such as Brazil’s Petrobras and indeed Russia’s Lukoil that may be happy to buy such deals. Iraq needs to maximize its oil income as quickly as possible, both to power its recovery and fund its own rebuilding, without the likes of Halliburton and Bechtel and other big contractors from the US cutting themselves lucrative slices of the pie.
