Eyes are focused on Baghdad again. It may not have been a repeat of “Shock and Awe” that descended on Baghdad in March 2003, yet many see a common streak in both: Securing control of the natural resources of this unfortunate nation.
Later this week, on 29th and 30th to be exact, Hussain Shahristani, the beleaguered Iraqi oil minister, is to award so-called “service contracts” to global oil majors to develop the country’s most prized asset: Six of its largest oil producing fields.
Up for grabs are 20-year concessions to operate its six huge oilfields and two gas fields. Thiry-two companies, including BP, Shell, Sinopec of China, Lukoil of Russia and Total of France, are bidding.
“Fields like this don’t exist anywhere else in the world,” said Manouchehr Takin of the London-based Center for Global Energy Studies.
Indeed, Iraq is sitting on 115 billion barrels of proven reserves. At a time when explorers are going to great lengths to get at new sources, Iraq’s is one of the easiest in the world, costing between $2 and $4 a barrel to extract.
And the move has sparked furious controversy, many accusing the oil minister of a complete sellout. Iraqis are wary of the involvement of foreign oil companies in raising production in super giant fields like Kirkuk and Bai Hassan in the north and Rumaila, Zubair and West Qurna in the south.
They suspect the 2003 US invasion was ultimately aimed at securing Western control of their oil wealth. The nationalization of the Iraqi oil industry by Saddam Hussein in 1972 remains popular, and the rebellion against the service contracts has been gathering pace all this week. In June 2008, too, the Iraqi oil industry was poised to sign two-year technical-support contracts with global oil majors. Control would have remained with Iraq. However, at the last minute, the contracts were cancelled, despite the support of Shahristani and the council of ministers.
The raging debate revolves around developing new fields or handing out existing fields to oil majors so as to enhance their output rather quickly, and (for a fee) restoring and increasing output. They will, however, have greater control when there is a second round of bidding for oilfields that have been discovered but not yet developed. Separate again is the question of exploration for as-yet undiscovered reserves.
“We have started to develop the oil-producing fields because it is faster and Iraq is in extreme need to increase its production,” Shahristani said while defending the decision in Parliament on Tuesday. “The undiscovered fields need time for drilling . . . if we keep producing from our existing fields without digging anew and putting in more effort, production will decrease.”
This model is but in sharp contrast to the one adopted by Iraq’s oil-rich Kurdish region, where numerous profit-sharing deals have been struck.
“The regional government of Kurdistan has made clear progress in increasing Iraq’s oil exports and oil revenues in a short time,” said a statement from the Kurdish regional government. “This progress has been made by focusing on exploration and not on existing fields, in line with the best practices of international markets, and in accordance with the principles of the Constitution of Iraq. The regional government regrets that it cannot say the same thing on the procedures taken by the Federal Ministry of Oil of Iraq.”
Others also are at unease.
Fayad Al-Nema, director of the South Oil Company, an Oil Ministry subsidiary producing most of Iraq’s crude, says, “These service contracts will put the Iraqi economy in chains and shackle its independence for the next 20 years.”
Al-Nema is reported to have since been fired because of his opposition to the contracts, which he says is shared by many other officials in Iraq’s state-owned oil industry.
Jabir Khalifa Kabir, the secretary of Parliament’s Oil and Gas Committee, is also of the view that the contracts will “chain the government with complex contractual terms” and will abort South Oil Company’s own plans to raise production.
The government, however, maintains the process must go ahead, underlining the difficulties it has been facing in financing development of existing fields. With 80 percent of its revenues going to pay for salaries, food rations and recurrent costs, little is left for reconstruction. The government has been finding it hard to pay even for much-needed items, such as an electrical plant. Shahristani argues he needs $50 billion over the next few years to boost output any further from the current 2.5 million barrels a day, emphasizing this money and expertise can only come from outside Iraq.
On the other hand, the oil majors continue to point out that the contracts are not particularly favorable to them.
“Everyone wants to be in Iraq,” said Iraqi oil analyst Ruba Husari. “Together with Iran, this is the only oil province in the world that has great potential. It is a great opportunity for oil companies because nobody knows the size of Iraq’s reserves. Iraq itself needs to know what is under its soil.”
The undue attention that Iraq is getting is indeed not without reason.
