Thursday, April 23, 2009

Battle Over Control of Iraq’s Natural Resources Heats Up

In April 2009, the secretary of Iraq’s Oil and Gas Committee in parliament, Jabir Khalifa Jabir said that the government’s deal with Royal Dutch Shell to exploit natural gas in the south was illegal. That same committee criticized the Shell proposal in November 2008 as well. Both times the committee said that there was no transparency in the negotiations, no competition, and that it went against the interests of the country. This is part of the growing battle over who has control of Iraq’s natural resources.

In September 2008 the Oil Ministry contacted Shell to create a joint venture with the state run-South Oil Company to extract natural gas from the southern oil fields. The Iraqi government would control 51% of the joint company, and Shell 49%. The Oil Ministry claims that it looses $40 million a day in natural gas, which is burned off during oil production, because it doesn’t have the means to exploit it. The contract is supposed to last 25 years, and would give a virtual monopoly to Shell. The corporation is supposed to use the natural gas for both domestic needs and exports, but there are no specifics on how this is to work. It’s estimated that Shell could make up to $3-$4 billion in the next five years as a result, making it the largest oil or gas deal in the country’s history. In February 2009 the OIl Ministry also announced that Japan’s Mitsubishi would be working with Shell on gas production.

This has drawn the ire of the Oil and Gas Committee in parliament. In both November 2008 and April 2009 they have criticized the Shell deal. First there were no other companies considered. The Oil Ministry claims that this was okay because it will be a joint venture with a state-run company. The Ministry however, is not applying that standard for its oil deals where it is taking tenders from several different international corporations that are expecting to work as joint ventures as well. Second the committee objects to the fact that the wording of the agreement says that Shell will be the sole producer of natural gas in southern Iraq, giving it a monopoly. Jabir also claims that Article 97 of the Iraqi constitution requires all new natural resources contracts to be approved by parliament, and this has not happened, making it illegal. Jabir is also concerned that Shell will use most if not all of the gas it produces for export, rather than for domestic consumption.

The conflict between the Oil Ministry and the parliamentary committee is only the latest in a growing feud over control of Iraq’s oil and gas. As reported before, Oil Minister Hussein Shahristani has formulated a largely haphazard, and sometimes contradictory oil policy, which has failed to produce many results so far. Shahristani has been criticized as a result, and there are moves underway to strip him of much of his power. Other problems include the fact that the Iraqi legislature has not passed a new oil law, the petroleum companies have the upper hand with the drop in crude prices, and parliamentary elections in Iraq could make the Shell deal a campaign issue. Finally, much of the Iraqi public is extremely suspicious of foreign corporations, and are generally opposed to them exploiting the country’s resources. All of these issues together, probably mean that there will be little movement on the Shell contract or any oil one in the immediate future. The Oil Ministry and its critics will continue to argue over control, while the oil companies will be stand offish until the domestic situation in Iraq stabilizes.

SOURCES

Ciszuk, Samuel, “Iraq politics impact Shell gas deal,” Iraq Oil Report, 4/20/09

Crooks, Ed and Khalaf, Roula, “Shell in Iraqi gas deal worth up to $4bn,” Financial Times, 9/8/08

Graeber, Dan, “Iraq approves gas deal with Royal Dutch Shell,” Iraq Oil Report Blog, 9/7/08

Hafidh, Hassan and Herron, James, “UPDATE: Iraqi Govt OKs Mitsubishi To Join Shell In Gas Deal,” Wall Street Journal, 2/12/09

Iraq Oil Report, “Iraq opts for long term oil deals, ditches no-bids,” 9/9/08

Khadduri, Walid, “Oil in a Week – Iraqi Oil 2008-2009,” Al-Hayat, 1/12/09

Lando, Ben, “Shell-Iraq gas company is a monopoly, secret agreement shows,” UPI, 11/4/08

Lando, Ben and Majeed, Alaa, “Gas deal no monopoly, Shell and Iraq say,” UPI, 11/6/08

Macalister, Terry, “Iraq parliament promises to push Shell out of gas deal,” Guardian, 4/18/09

Rasheed, Ahmed, “Iraq Lawmakers Say Will Challenge Shell Gas Deal,” Reuters, 11/26/08

Salaheddin, Sinan, “Iraqi official: Mitsubishi to join Iraq gas deal,” Associated Press, 2/12/09

Yacoub, Sameer, “Iraq, Shell sign deal,” Associated Press, 9/22/08

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