Iraq-Shell Natural Gas Deal May Finally Become A Reality

Finally, after three years, the Shell-Mitsubishi natural gas deal with Iraq may be heading towards fruition. Back in 2008, Royal Dutch Shell signed an initial agreement with Iraq’s Oil Ministry to develop gas produced from Basra’s petroleum fields. Later Mitsubishi joined as a junior partner. Talks dragged on and on over legal, procedural, and operational issues. That may finally be coming to an end, and the dream of developing Iraq’s vast natural gas resources could become a reality.

On June 19, 2011, it was reported that Shell and Mitsubishi were finally starting some preparatory work in Basra province. Bloomberg news reported that Shell had completed a geographical survey of the Shatt al-Arab waterway, Iraq’s access to the Persian Gulf. In July, it’s supposed to install fifteen production wells and a pipeline at the Majnoon oil field, which it won a contract to develop with Malaysia’s Petronas in 2009. The company also plans on building a pier in the waterway to help bring in equipment, and to upgrade two degassing stations, and build a processing plant in the governorate. This is the first work that Shell has done in Basra for its gas project. The Oil Ministry still has not come to a final agreement however. The result is that around 700 million cubic feet of gas is flared per day during the production of oil from Basra’s fields.

Shell, and later Mitsubishi have been talking with the Iraqi government over this deal since 2008, but has run into a never-ending series of problems. This year, the Oil Ministry has repeatedly said that these issues are being resolved, but there is still no agreement. At the end of January, the Deputy Oil Minister Ahmed al-Shamma said that the two sides were still working on the details, but the most difficult parts had been resolved. The next month, it was said that legal and constitutional barriers were holding up the deal. The Deputy Oil Minister said that old laws only allowed the government to export gas, and those needed to be changed for things to move forward. In March, the oil and gas committee in parliament told the Ministry that it needed to review the economics of the plan. Then at the end of the month, the government claimed that the final obstacles had been overcome. The issue of exports had been resolved when Shell and Mitsubishi agreed to allow the State Oil Marketing Organization to handle them. That announcement was contradicted in April, when legal problems were brought up again, but then a draft contract was announced in May, which was supposed to be completed within a week. That same month, the government claimed it would develop the gas from Basra whether the differences with Shell and Mitsubishi were worked out or not, and then threatened the two companies that they had to sign a deal immediately or be dropped. Then suddenly in June, everything seemed to be back on track. What all this back and forth shows, is that the Oil Ministry’s public announcements on this affair cannot be trusted. It has claimed again and again, that a resolution is just around the corner, but then nothing happens. This has been going on for three straight years. It even had the audacity to threaten Shell and Mitsubishi with canceling their contract if they didn’t agree to all of Baghdad’s demands. Their latest statements could be thrown into this same lot if not for the fact that Shell has finally started some actual work in Basra.

If ever completed, the deal would be a major step forward to develop Iraq’s natural gas. Shell and Mitsubishi would be given a 20-year contract to collect the gas produced from the Majnoon, Rumaila, West Qurna 1, and Zubair oil fields. Up to 3 billion cubic feet of gas could be provided in 6-7 years as other foreign companies develop the fields. Most of that would be used for the country’s power plants, but also for exports. Iraq hopes to become a major energy source for the region, East Asia, and Europe in the future. The deal in June 2010 could be worth up to $12.5 billion. With such a large and important prize in sight, it’s amazing that nothing substantive has happened so far. Iraq has always been known to miss almost every important deadline it has ever set, but this takes things to the extreme.

Iraq has some of the largest natural gas reserves in the Middle East. Barely any of it is being used. Three gas fields were successfully auctioned off in 2010. The Shell-Mitsubishi deal would be even larger. For whatever reasons, none of which seem to be clear, the Oil Ministry has not been able to complete the negotiations. Every month almost, it claims that some progress has been made, but there are no results. Hopefully all of this is coming to a successful end with Shell starting to develop some of the necessary infrastructure in Basra, otherwise the country’s gas will continue to be largely wasted, costing it millions of dollars in lost revenues and fuel for its electricity plants.

SOURCES

Bloomberg, “Iraq, Shell to Draft Contract for Gas Project Within a Week,” 5/10/11

El Gamal, Rania, “ANALYSIS-Iraq seeks a plan B if Shell gas deal falters,” Reuters, 3/2/11
- “UPDATE 1-Iraq won’t cut 12 mln bpd oil output capacity goal,” Reuters, 5/8/11

Hafidh, Hassan, “Iraq Says Last Obstacle to Shell Gas Deal Removed,” Wall Street Journal, 3/29/11
- “Shell Iraq Natural Gas Venture Delayed By Legal Issues-Official,” Dow Jones, 2/14/11
- “Top Iraqi Panel Asks Oil Ministry to Review Shell Gas Deal –Minister,” Dow Jones, 3/22/11

Kumagai, Takeo, “Iraq says still negotiating final details of gas deal with Shell,” Platts, 1/27/11

Rasheed, Ahmed, “INTERVIEW-Iraq legal obstacles delay $12 bln Shell gas deal,” Reuters, 4/25/11
- “Iraq warns Shell over $12bn gas deal deadline,” Reuters, 5/30/11

Razzouk, Nayla, “Shell Ready to Start $12.5 Billion Project to Conserve Iraq’s Natural Gas,” Bloomberg, 6/19/11

Reuters, “Iraq moves on with gas development, awaits Shell deal,” 5/22/11

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July 1, 2011 Protests In Iraq’s Tahrir Square, Baghdad

July 1, 2011 was Firm Roots Friday for protesters in Iraq’s Tahrir Square, Baghdad. Reports said tens to hundreds attended the event. Unlike previous weeks, Prime Minister Nouri al-Maliki did not organize a counter-march in the square to shut out his critics. A variety of concerns were aired, which has been the norm. People could be heard calling for political reforms, an end to sectarianism, and national reconciliation. Some were calling for the death sentence for a man who has been held for three years to be reversed. His supporters claimed his sentence was politically motivated. Others called for the end of the U.S. occupation, and an American flag was burned. One of the main chants was against Maliki, calling for him to resign and condemning his repressive tactics. On June 10 for example, a pro-government crowd attacked demonstrators, and drove them from the square. Human Rights Watch noted that plainclothes policemen were part of the mob, and some beat protesters, while the security forces that were wringing Tahrir looked on. There was also a group of contract workers for the National Election Commission who called for full time work.

This was a largely peaceful assembly that lacked the drama of the last couple weeks because Maliki chose not to interfere. On the other hand, the numbers of participants was still low, and there was only one other event  reported on the rest of the country, a demonstration in Dhi Qar by tribal sheikhs demanding better services. As mentioned before, Iraq’s protest movement is sputtering and splintering, while still coming under government pressure. Activists are under threat of becoming politically irrelevant unless they are able to get new momentum, and bring out larger crowds in more cities. Otherwise, the Prime Minister will have won through his repressive tactics.

Video from July 1, 2011 Protest In Tahrir Square, Baghdad





SOURCES

Alsumaria, “Baghdad residents protest against Iraqi Government,” 7/1/11

Human Rights Watch, “Iraq: Attacks by Government-Backed Thugs Chill Protests,” 6/30/11

National Iraqi News Agency, “Demonstrators in Tahrir Square in Baghdad renew demands for political reforms, and burn American flag,” 7/1/11

Al Sharqiya Television, "Tribal elders in Dhi Qar: the deterioration of services and lack of the most basic requirements of the Simple Life," 7/2/11

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Three More U.S. Soldiers Die In Iraq, Hezbollah Brigades Suspected

June 2011 ended with three more U.S. soldiers killed in Iraq. That brings the total to 15 American deaths for the month, fourteen of which died in enemy attacks. The Iranian-backed Hezbollah Brigades are suspected of being behind this latest incident.

On June 29, several rockets landed on a U.S. base in Wasit province, southern Iraq along the Iranian border killing three soldiers. The incident involved an improvised rocket-assisted mortar (IRAM), which also left more than a dozen others wounded. That brings June’s total to 15 U.S. soldiers killed, with 14 in hostile actions. Also this month, an American contractor working for the United States Agency for International Development (USAID) was killed by a sticky bomb attached to his car in Baghdad. The last time U.S. forces had such losses was in June 2009 when 15 were killed as well, 10 of which were by enemy actions. The previous high for combat deaths was 24 in June 2008. 

IRAM used against U.S. Camp Loyalty, Baghdad, April 2008

(Long War Journal)

(Danger Room, Wired Magazine)

Hezbollah Brigades were the likely suspects behind this latest incident. The U.S. military said they are the only group in Iraq that uses the IRAM. The organization also took responsibility for a June 6 attack upon Camp Loyalty in Baghdad that left six Americans dead. It posted a video claiming that an IRAM was used then as well. The weapon was first seen in Iraq in April 2008 when they were also used against several American bases in Baghdad. It is made up of several large canisters filled with explosives and Iranian manufactured rockets. After their brief appearance that summer one was not used again until January 2010 in an assault upon a camp in Amarah, Maysan. At that time, the U.S. military said that IRAMs had only been used 14 times since the 2003 invasion. They are apparently now back in Iraq.

(Wikipedia)

Hezbollah Brigades was founded in 2007, and is led by Abu Mahdi Muhandis, aka Jamal al-Ibrahimi. Muhandis was born in Basra, and first joined the Dawa Party in the early 1970s. In the 1980s he worked with the Iranian Revolutionary Guards Qods Force to carry out attacks upon the Kuwaiti royal family, and the U.S. and French embassies in Kuwait City in an attempt to deter them from supporting Iraq in the Iran-Iraq War. Afterward, he fled to Iran where he joined the Supreme Islamic Iraqi Council’s militia, the Badr Brigade in 1985. He fought on Tehran's side in the Iran-Iraq War, and became Badr's deputy commander by 2001. He resigned the next year when the Supreme Council agreed to work with the Americans before the U.S. invasion. Muhandis then ran in the 2005 parliamentary elections, winning a seat as part of the United Iraqi Alliance, the main Shiite list that year. At the same time, he ran a weapons smuggling network from Iran to Iraq, and shipped militiamen to the latter for training. In 2007, the U.S. and Iraqi forces began targeting his network, which led him to flee to Iran where he became an adviser to the Qods Force commander General Qassim Suleimani. Muhandis ran for office again in 2010, but was defeated.

Hezbollah Brigades is a small organization that receives weapons and funding from Iran. It has about 1,000 fighters, each of which receives a salary of between $300-$500 a month according to an Iraqi intelligence officer. Besides IRAMs, Special Groups like Hezbollah have also been using advanced rocket propelled grenades (RPGs) and explosively formed penetrators (EFPs) against U.S. forces. Like the IRAM, these are all supplied by Iran, which uses smuggling routes through Diyala province to Baghdad, and from Um Qasr port in Basra to southern Iraq, along with buses carrying Iranian pilgrims to religious sites. 

Iran has been known to step up its military operations to coincide with important political events in Iraq. This time it is focusing upon the December 31 date for U.S. forces to withdraw from Iraq. Beginning in April, American officials began traveling to Baghdad to try to convince the government to allow some residual force to stay past the deadline. Tehran wants to prevent that from happening, so it is increasing its aid to Special Groups to force the U.S. out. That’s exactly when Shiite militants began ramping up their attacks. There were 93 operations against U.S. forces in February, then 128 in March, and 162 by April, 72 of which were mortar and rocket attacks upon the Green Zone for that last month. That’s also when casualties took off going from none in January and February caused by Shiites, to one in March, to four in April, and now to fourteen in June. Two soldiers were also killed in Baghdad in May, but it’s impossible to tell who was behind that act. Besides Hezbollah Brigades, Sadr’s Promised Day Brigades and the League of the Righteous have also been linked to attacks upon Americans. More U.S. deaths can be expected into the future until their fate is finally decided by Iraq’s politicians. Ironically, once that decision is made, Tehran is likely to scale back its military support and return to using political, economic, and social means to achieve its goals in Iraq as it has done in the past.

SOURCES

Allam, Hannah, “Rarely used flying bomb strikes new targets in Iraq,” McClatchy Newspapers, 1/15/10

Arango, Tim, “U.S. Monthly Combat Deaths in Iraq at 3-Year High,” New York Times, 6/30/11

Associated Press, “Iraq rocket attack kills three American soldiers,” Guardian, 6/30/11
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Craig, Tim and O’Keefe, Ed, “U.S. military sees Iran behind rising trop deaths in Iraq,” Washington Post, 6/29/11

Felter, Joseph and Fishman, Brian, “Iranian Strategy in Iraq, Politics and ‘Other Means,’” Combating Terrorism Center at West Point, 10/13/08

Gienger, Viola and Capaccio, Tony, “Iran Again Arming Iraqi Groups Attacking U.S. Troops, Gates Says,” Bloomberg, 6/29/11

Harari, Michal, “Status Update: Shi’a Militias in Iraq,” Institute for the Study of War, 8/16/10

Icasualties, “Iraq Coalition Casualties: Fatalities by Year and Month”
- “Iraq Coalition Casualties: Military Fatalities”

Jakes, Lara, “Shiite militias step up Iraq attacks on US troops,” Associated Press, 6/30/11

Knights, Michael, “The Evolution of Iran’s Special Groups in Iraq,” CTC Sentinel, November 2010

Lando, Ben, “Iraq Militants Ratchet Up Attacks on U.S.,” Wall Street Journal, 5/24/11

Roggio, Bill, “Mahdi Army uses “flying IEDs” in Baghdad,” Long War Journal, 6/5/08

Strouse, Thomas, "Kata'ib Hezbollah and the Intricate Web of Iranian Military Involvement in Iraq," Jamestown Foundation, 3/4/10

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