Is Big Oil Going to Control Iraq’s Reserves?

By Christian Parenti, The Nation. Posted March 6, 2007.

Iraq's postwar oil bonanza remains a mirage. The country has the second- or third-largest reserves in the world, making petroleum the heart and vast bulk of its economy. Thus in March 2003 did Paul Wolfowitz assure Congress that Iraq would "finance its own reconstruction, and relatively soon." American planners predicted that Iraq's oil production would triple to a feverish 6 million barrels per day by 2010.

Instead war, corruption, sectarian slaughter and a massive crime wave have reduced the country's once mighty petroleum sector to an industrial zombie: still ambulatory, functional but essentially dead.

Despite this, oil majors and the International Monetary Fund have been pressuring Iraq to pass a thoroughly free-market hydrocarbons law that would allow foreign companies to make huge profits from Iraq's petroleum. A draft of the law has just been released; the Iraqi Cabinet has approved it and sent it on to Iraq's Parliament for debate and approval in March.

But is Big Oil really poised for total victory in Iraq? Such an outcome is hard to imagine, at least in the near term, given the likelihood of opposition from Iraqis and, more important, the spiraling chaos: Iraq is a society in meltdown with no real state to speak of. Many politicians have fled Iraq, rarely risking trips back to Baghdad, so even achieving a basic parliamentary quorum can be difficult. Controlling and profiting from Iraq's oil has been the goal of the oil majors, but they do not write history unmolested by the momentum of events and competing agendas.

Nor does the proposed oil law simply serve Iraq up on a plate to the oil giants. One London-based oil analyst who expected a more decentralized and free-market law called it "bloody confused." On key questions of foreign investment and regional decentralization versus centralized control, the law is vague but not all bad. In general terms it reaffirms state control over oil and binds Iraq's Sunni center and Shiite south to the Kurdish north by re-creating a single Iraqi National Oil Company, which will in turn dole out oil income to the regions on a per-capita basis. This might help de-escalate sectarian conflict.

But the law leaves plenty of problematic wiggle room: All its important details are left for later resolution by a new Federal Oil and Gas Council to be controlled by the prime minister, which will effectively bypass Parliament. And while the law asserts a set of generally nationalist economic goals, it sets no minimum level for state participation, nor does it cap the amount of profits allowed to foreign firms.

Among the Iraqi political class there is pervasive confusion about the new law, but there is also a deep resource nationalism that opposes selling off the country's patrimony. My interviews with Iraqi oil experts, politicians and regular people revealed a quite reasonable and balanced view of the situation: Most felt that foreign participation in the oil sector could be helpful in reviving an industry battered by a fifteen-year nightmare of war, sanctions, more war and now anarchy. But no one felt Iraq should have to enslave itself to the will of Shell, BP or ExxonMobil.

If an aggressively liberalizing and decentralizing interpretation of the oil law is eventually pursued, it is not at all clear that it will, in fact, shape the future (if there is one) of Iraq's petroleum sector. "If an unfair oil law is passed, it will be a bone of contention for years to come," says Kamil Mahdi, an Iraqi academic now at the University of Exeter in Britain. "It will be remembered as something forced through during the worst period of violence. It will sow the seeds of instability throughout the whole region."

So what will the new oil law actually stipulate? Will it be passed into law and accepted by the people? And what are the real conditions and potential of the Iraq oil industry?

"The situation is pretty dire and going to get worse before it gets better," says oil analyst George Orwel, of Energy Intelligence. Orwel follows the Iraq oil industry from New York, working the phones to reach contacts that range from ministers in Baghdad to oil terminal engineers in Basra. He and other analysts paint a horrifically bleak picture.

Before the 1991 Gulf War the country's oil sector produced as much as 3.5 million barrels per day. But after four years of occupation, Iraq has only recently and momentarily managed to reach an output of 2.1 million barrels per day. And it can rarely manage to export more than 1.5 million barrels per day. Iraq's current oil production is concentrated in the north and the south. But since the US-led invasion, production in the northern fields has been almost totally off-line because of constant sabotage: 400 major attacks have been recorded on the pipelines that connect the Kirkuk fields to the Baiji refinery and both of those to the Turkish port of Ceyhan. Last year attacks on oil installations and employees killed 289 people and wounded 179.

The Oil Ministry--controlled by the Shiite government--is mired in corruption. Shoddy record keeping, limited accountability, little investment and endemic brain drain set the tone. Many of Iraq's petroleum engineers and geologists have escaped. "Most of those guys are either hiding in Sunni cities, driving cabs or they have fled abroad because they were listed on death-squad death sheets," said chief engineer Abdullah of Saladin Province.

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Christian Parenti is the author of "The Freedom: Shadows and Hallucinations in Occupied Iraq" (New Press) and a visiting fellow at CUNY's Center for Place, Culture and Politics.

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