Oil Minister Under Attack On Eve Of Awarding New Contracts

Oil Minister Hussain Shahristani is under attack from all sides as he is about to award new long-term oil contracts to foreign companies. There are those that are afraid of the influence of international corporations, others that object to the legality of the contracts, some that want to go after Prime Minister Nouri al-Maliki since Shahristani is an ally, and finally those that oppose the Minister’s direction overall. Despite these troubles, Shahristani is intent on going forward with his plan to boost Iraq’s oil production through these deals.

On June 29 and 30, 2009 the Oil Minister will award 20-year oil contracts for six of Iraq’s largest oil fields and two undeveloped natural gas ones. 35 companies have been pre-approved for bidding on these deals including Exxon-Mobile, Shell, Italy’s Eni SpA, Russia’s Lukoil, and China’s Sinopec. The oil fields have up to 44 billion barrels, while the gas ones hold up to 22 trillion cubic feet in reserves. This is part of the Oil Minister’s plan to boost overall oil production to 2.9 million barrels per day by the end of 2009, and 6 million barrels per day in several years. Iraq currently is production about 2.3 million barrels per day.

Before the bidding begins however, the Oil Minister has come under increasing attacks from all sides. On June 23 he appeared before parliament’s oil and gas committee who demanded that the oil deals be approved by parliament. These complaints are motivated by a number of factors. First, the head of the committee is a Kurd. The Kurdistan Regional Government (KRG) has had a running battle with Oil Minister Shahristani over its independent oil policy for over a year now. Many lawmakers that are opponents of the Prime Minister want to assert the authority of the parliament to be a check on his power, hence their demand that the legislature confirm the contracts. Oil Minister Shahristani is also a close ally of Maliki who ran as part of his State of Law list in the 2009 provincial elections.

The KRG itself has warned the Oil Minister about his plans as well. The Kurds demand that they be included in any negotiations over oil deals in Kirkuk. They have warned that they will reject any deals that they are not consulted about, and will not provide security or their cooperation with oil companies that conduct work there as a result. The governor of Tamim province, the home of Kirkuk, who is a Kurd, said he and the provincial council should also be brought into the process. The Kurds consider Kirkuk there’s, even though it’s a disputed territory whose future is caught up in the political divisions within the country. Their threats about oil deals there are part of their attempt to establish de facto control of the area.

Members of the state-run South Oil Company, the largest in the country, have also come out against the oil contracts. The Oil Unions’ Federation in Basra demanded that the 1st round of bidding be cancelled. They said that Iraq’s oil could be sufficiently developed by the Oil Ministry with no outside help. The Director General of the company also sent a memo to Shahristani a few days earlier saying that the deals would cripple the economy, and objected to their length. He said that the government run oil companies were already doing much of the same work, and that they only need technical help from foreigners. The director also warned that the deals could be held up in court because they could conflict with existing laws and projects. The Director General suggested that the Oil Ministry only give out short-term technical service agreements instead. This group of critics is motivated by fear of neo-colonialism. They want to protect Iraq’s natural resources from foreign oil companies who they believe will exploit the nation for themselves and leave nothing for Iraq.

Finally, two former Oil Ministers and current officials of the ministry have also come out against the contracts. Saddam’s Minister Esam al-Chalabi said that it was a mistake to start with fields that were already producing, because that would create conflicts between the existing and future work. He warned that any new contracts could be annulled as a result. Prime Minister Ibrahim al-Jaafari’s Oil Minister Ibrahim Bahr al-Ulum voiced the same concerns as the South Oil Company about the potential for foreign control of Iraq’s resources. There are allegedly several high Oil Ministry officials that are also against the contracts complaining about technical issues. This is another group of former and current members of the oil industry that are concerned about Shahristani’s approach to boosting Iraq’s production. They are worried about conflicts his policy might lead to, and the overall direction Shahristani is going in.

There is plenty more to criticize the Oil Minister about as well. His plans have been haphazard at best. In 2008 he was ready to give out short-term oil contracts, and then suddenly cancelled them. Since then the Ministry and state-run petroleum companies have begun giving out a slew of contracts for new work, some of which will happen in fields that are up for bid. Those deals and contracts for foreign consultants should’ve been given out last year when the country was flush with money. It’s also not clear that the Ministry has any ideas about how to create effective business models to effectively develop the field. All of these problems may be due to the fact that Shahristani had no experience in the oil business until Prime Minister Maliki appointed him. Beforehand, Shahristani was a nuclear physicist who after the U.S. invasion was best known for his contacts with Grand Ayatollah Ali al-Sistani.

Iraq’s oil business is a mess. After several wars, years of sanctions, and attacks from the insurgency the infrastructure is falling apart, and many technocrats have fled. Oil is especially important because it accounts for the vast majority of the country’s revenues. Oil Minister Shahristani believes that the industry needs up to $50 billion to be developed. The only way that it can obtain that is through partnership with foreign companies. It’s difficult to enter into these contracts since Iraq has been unable to pass a new oil law since the U.S. invasion. That has led the Minister to push ahead with his own strategy to gain investment and boost production, which has been full of missteps. This has drawn the ire of all sides from those afraid of foreigners, to ones opposed to Maliki and the central government, to ones with different views of Shahristani’s approach. None of these groups are likely to stop the bidding round at the end of June, but it’s likely they will continue to stand in the way of Shahristani’s policy at every turn, making the deals very risky for any companies that win them. That will mean more problems for Iraq’s most important resource.

SOURCES

Abbas, Mohammed, “Iraq Kurds say must have say on Kirkuk oil fields,” Reuters, 6/1/09

Aswat al-Iraq, “Kirkuk governor urges coordination over oil contracts,” 6/17/09

Chon, Gina, “Big Oil Ready for Big Gamble in Iraq,” Wall Street Journal, 6/24/09

Cockburn, Patrick, “Iraqi Oil Minister accused of mother of all sell-outs,” The Independent, 6/18/09

Cordesman, Anthony, “Observations From a Visit to Iraq,” 6/12/09

Dow Jones, “2nd UPDATE: Iraqi Oil Workers Demand Bid Round Cancellation,” 6/22/09

Ibrahim, Waleed, “UPDATE 1-Iraq oil min in parliament, facing foes of deals,” Reuters, 6/23/09

Mohsen, Amer, “Iraq Papers Sat: The I’tilaf is Back!” IraqSlogger.com, 6/19/09

Raphaeli, Dr. Nimrod, “The Oil Sector in Iraq: Prospects and Problems,” Middle East Media Research Institute, 6/11/09

Reuters, “ANALYSIS-Risk rises on Iraq oil deals after industry revolt,” 6/21/09

Shadid, Anthony and Vick, Karl, “Candidate Slate Shows Shiites Closing Ranks,” Washington Post, 12/7/04

UPI, “Iraqi oil director wants to scrap deals,” 6/18/09

Visser, Reidar, “The Map of Electoral Coalitions South of Baghdad Is Taking Shape,” 10/31/08