Iraqi Oil Law Gives Cover for Corporate Profit

By Emad Mekay, IPS News. Posted March 2, 2007.

The U.S.-backed Iraqi cabinet approved a new oil law Monday that is set to give foreign companies the long-term contracts and safe legal framework they have been waiting for, but which has rattled labour unions and international campaigners who say oil production should remain in the hands of Iraqis.

Independent analysts and labour groups have also criticised the process of drafting the law and warned that that the bill is so skewed in favour of foreign firms that it could end up heightening political tensions in the Arab nation and spreading instability.

For example, it specifies that up to two-thirds of Iraq's known reserves would be developed by multinationals, under contracts lasting for 15 to 20 years.

This policy would represent a u-turn for Iraq's oil industry, which has been in the public sector for more than three decades, and would break from normal practice in the Middle East.

According to local labour leaders, transferring ownership to the foreign companies would give a further pretext to continue the U.S. occupation on the grounds that those companies will need protection.

Union leaders have complained that they, along with other civil society groups, were left out of the drafting process despite U.S. claims it has created a functioning democracy in Iraq.

Under the production-sharing agreements provided for in the draft law, companies will not come under the jurisdiction of Iraqi courts in the event of a dispute, nor to the general auditor.

The ownership of the oil reserves under this draft law will remain with the state in form, but not in substance, critics say.

On Feb. 8, the labour unions sent a letter in Arabic to Iraqi President Jalal Talbani urging him to reconsider this kind of agreement.

"Production-sharing agreements are a relic of the 1960s," said the letter. "They will re-imprison the Iraqi economy and impinge on Iraq's sovereignty since they only preserve the interests of foreign companies. We warn against falling into this trap."

Ewa Jasiewicz, a researcher at PLATFORM, a British human rights and environmental group that monitors the oil industry, told IPS in a phone interview from London that, "First of all, it hasn't been put together in any kind of democratic process... It's been put through a war and an occupation which in itself is a grotesquely undemocratic process."

The law was prepared by a three-member Iraqi cabinet committee, dominated by the Kurds and the Shiites. It is now expected to be ratified by parliament because the powerful faction leaders in the government have cleared it.

The first draft was seen only by the committee of the Iraqi technocrat who penned it, nine international oil companies, the British and the U.S. governments and the International Monetary Fund. The Iraqi parliament will get its first glimpse next week.

Concerns about the process are compounded because of the ongoing disputes in Iraq over the legitimacy of the Iraqi cabinet and the Iraqi parliament, which have been constructed by the occupation-created governing council, which itself was created in 2004 along sectarian lines.

In a speech earlier this month by Hassan Juma, head of the Iraqi Oil Labour Union, posted on the union's website, he called on the Iraqi government to consult with Iraqi oil experts and "ask their opinion before sinking Iraq into an ocean of dark injustice."

The content of the law has also worried both international campaigners and local Iraqi groups who say that it puts Iraqi oil wealth firmly on the path to full privatisation.

"The hydrocarbon law reflects the process of readying Iraq's oil for privatisation," said Jasiewicz. "Drafted in secret, shaped by foreign powers, untransparent, undemocratic and forced through under military occupation."

Jasiewicz said the law can be regarded as the economic goal of the war and occupation and that "it will be viewed by most Iraqis as not just illegitimate, but a war crime."

But officials from the Iraqi government, who have already sent the draft oil law to parliament for consideration, say it represents a step forward for the war-torn country. Under the law, oil revenues would be distributed to all 18 provinces based on population size, and regional administrations have the authority to negotiate contracts with international oil companies.

Prime Minister Nouri al-Maliki, a close ally of Washington, called the law "another founding stone in state-building."

"This law will guarantee for Iraqis, not just now but for future generations too, complete national control over this natural wealth," Oil Minister Hussain al-Shahristani has reportedly said.

Initial drafts of the law starting eight months ago saw squabbles between the Kurdish factions who control the northern part of Iraq and the Shiite-led regime, as they both vied for bigger shares of the country's oil wealth, estimated at 115 billion barrels. That they have finally come to a final agreement may be a sign of long-sought stability.

Yet critics, including Iraqi oil professionals, engineers and technicians in the unions, are instead advocating for technical service contracts, meaning a company would come in and offer services such as building a refinery, laying a pipeline, or offering consultancy services, get their fees and then leave.

"It is a much more equitable relationship because the control of production, development of oil will stay with the Iraqi state," said Jasiewicz.

"That is the model that Saudi Arabia, Iran, Kuwait generally operate. There's no other country in the Middle East with the kind of oil reserves that Iraq has that would consider signing a production-sharing agreement," she said. "It's a form of privatisation and that's why those countries haven't signed these because it's not in their interests."

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