Have you ever watched a movie and suddenly hit a section that doesn’t quite make sense? Usually, I figure I missed a crucial twist, like a envelope being slipped to the chief baddie, or the fact that the receptionist is the detective in the opening scene.
I’m throwing this one open to readers, because it seems there is a plot thread here I am missing.
Storyline: The Iraqis are finally starting to negotiate development deals with big and middle sized oil companies. This should be good news on a lot of fronts. First, it means that enough stability has been established in some areas for economic progress to start taking place. Oil programs mean local jobs and royalties. Second, longer term, it means more oil supply which is badly needed. Although these project will take some time to come to fruition, bringing Iraq back to its formerly level of output, or perhaps even above that, will take a great deal of pressure off international oil supplies. At 2.5 million barrels per day, Iraqi production is still one million barrels per day below its pre-war level.
Yet some high profile Democratic congressmen have complained to Bush, contending that the revenue from these deals will encourage sectarian fighting. Narrowly, I suppose it might, seeing that rebels have targeted oil infrastructure, but one would assume that Big Oil is acutely aware of the security risks and deem them to be acceptable.
Note also that these objections have not yet been raised via high pressure, high profile means, say a resolution opposing the deals, a letter to the editor of the Post signed by the Congressmen plus, say, some Middle Eastern experts and some oil analysts. However, three Congressmen did have a press conference on this matter (although it appears not to have garnered much coverage) so this may rate as mid-level saber-rattling.
The bone of contention is that the proceeds from oil deals are being split among the key ethnic groups, the Kurds, Shias, and Sunnis, under a patchwork of oil laws left over from Saddam’s era, plus a compromise worked out among the groups. The legislators argue that not having new law in place is a prescription for disaster.
Normally, that line of argument would make sense, but this is not a normal situation. The reality is that any arrangement has good odds of being renegotiated whether laws are in place or not. You could easily see a new governing group repudiating considerable amounts of legislation created by their predecessors. That sort of thing happens in young, unstable countries.
Iraq has high odds of splintering into separate nations, just as Yugoslavia did (and note that the oil deals are with regional authorities, which may be the real issue here). The solons can’t be insinuating bribery; all these companies are subject to the Foreign Corrupt Practices Act. And what is even more interesting is that the State Department (in effect) said the Bushies have nothing to do with this matter, the deals are in the hands of the Iraqi Oil Ministry.
Any theories very much appreciated.
From United Press International (hat tip Iraq Oil Report):
U.S. congressional leaders are pressing the Bush administration to block deals to be signed between the Iraqi federal government and the world’s largest oil companies and to cancel deals between the Iraqi Kurdish region and smaller U.S. oil firms.
Sens. Charles Schumer, D-N.Y., John Kerry, D-Mass., and Claire McCaskill, D-Mo., want the United States to dam negotiations on contracts the senators claim will, in part, further sectarian fighting.United Press International has also obtained a letter from Senate Committee on Armed Services Chairman Carl Levin, D-Mich., to President Bush’s national security adviser Stephen Hadley, asking the administration to press Hunt Oil and other U.S. companies to cancel their oil deals with the Kurdistan Regional Government of Iraq.
The Iraqi Oil Ministry is negotiating two-year, technical support contracts — also being called technical service contracts — with Shell, BP, ExxonMobil, Chevron, Total, BHP Billiton and a consortium led by Anadarko. The deals, the scope and price of which have not been made public, are presumed to be worth $500 million each and provide technology, training and equipment to six key oil fields in Iraq, according to past ministry statements.
Each field would increase production by 100,000 barrels per day. The companies would likely not send any workers to Iraq. Shell, BP, Exxon and Total were part of the Iraq Petroleum Co., which controlled Iraq’s oil sector for decades before being kicked out in the 1960s and 1970s.
International oil companies have been providing free training to Iraq’s oil workers, and Iraq has signed contracts with companies to provide engineering, procurement and other oil field services. This and an increase in security for the northern pipeline have allowed Iraqi oil production to grow to 2.5 million barrels per day, according to the Oil Ministry’s May averages. Exports crossed the 2.1 million bpd mark, a record since the 2003 invasion.
Iraq has the world’s third largest oil reserves, capable of handling higher volumes than current output. But the sector needs to recover from decades of war, Saddam Hussein’s mismanagement and sanctions. The ministry has decided to first move on these six contracts, and is readying for a bidding round for an undisclosed number of oil and gas fields later this year.
In a separate letter to Secretary of State Condoleezza Rice, Schumer and Kerry called for Iraq to pass legislation governing the oil sector first.
“We ask that you work with the (government of Iraq) to ensure that they do not sign any agreements relating to oil or gas until they have passed a fair, equitable and transparent hydrocarbon revenue sharing agreement that benefits the Sunni Arabs, Shia Arabs, Kurds and all other Iraqi citizens,” the senators wrote.
Without a new law, Iraq is relying on regulations left over from Saddam. A draft oil law has been stalled in Parliament by internal Iraqi disputes over the extent foreign oil companies should be allowed into the national oil sector and how much control over the oil strategy will be given to local governments. Three companion laws — revenue sharing, reconstituting the national oil company and reorganizing the Oil Ministry — are further behind in the legislative process.
Iraq is already splitting revenue by compromise between factions. Schumer, Kerry and McCaskill in a short press conference Tuesday said without a revenue sharing law the oil deals will cause more fractures.
“You can’t blame Iraq for the desire to expand oil production,” Schumer said. “However, signing oil contracts without a revenue sharing law is a recipe for disaster.”
The three warned against possible perceptions that the war was fought to benefit international oil companies, and that no-bid contracts were not transparent…..
The other companies couldn’t be reached or couldn’t provide comments before the article was published.
“We welcome Iraq’s decision to negotiate with companies on these contracts, as we believe that commercial partnerships with private companies will accelerate Iraq’s ability to develop its oil and gas resources,” said State Department Iraq Press Officer John Fleming, though the State Department has not seen the senators’ letter and wouldn’t comment on it directly.
“The Ministry of Oil has been developing relations with about 40 international oil companies since 2004,” he said, adding the U.S. government “is not playing any role in the Ministry of Oil’s commercial negotiations.”
The senators said the administration should use the contracts as leverage to press Iraq to pass the oil and revenue sharing laws. When asked whether this contradicts the sovereignty of Iraq, they said U.S. efforts in Iraq — and troops on the ground — make the oil deals an American concern.
“If it’s in Iraq, it’s not a private sector matter,” McCaskill said.
This is the first public outcry by Congress over oil deals in Iraq. The six contracts were first made public late last year, and Iraq’s Kurdistan Regional Government has signed 20 exploration and production deals since 2004.
Schumer, Kerry and McCaskill fielded three questions before ending the press conference.
Kerry, responding to reporters’ shouted questions, said, “The Kurds are separate and independent.”
Dallas-based Hunt Oil is the most prominent of the half-dozen U.S. firms that signed deals with the KRG. The deals are controversial because the regional government claims a constitutional right, which is disputed by Baghdad.
Levin, in his June 5 letter to Hadley, said the KRG deals are hurting reconciliation efforts within Iraq, including on the oil law.
“I believe the administration should request Hunt Oil, and other U.S.-based oil companies, to withdraw from any (production sharing contract) they have signed and to advise the KRG that they are doing so in order to facilitate the passage of national hydrocarbon legislation,” he wrote.
“We’ve received the letter and are reviewing it,” said National Security Council spokesman Gordon Johndroe. “We’ll get back to the senator in the coming days.”
Hunt Senior Vice President for Corporate Affairs & International Relations Jeanne Phillips, when asked about the letter, said, “We would never presume to comment on correspondence between a member of the United States Senate and other government agencies.”
Levin also questioned whether the State Department warned Hunt Oil against signing the deal, saying he received differing versions of communication from the company and the State Department.
“The clear inconsistency between the State Department and Hunt Oil in their accounting of the meetings leading up to the company’s signing of a (production sharing contract) with the KRG is deeply troubling,” Levin wrote.
“We continue to advise companies that they incur significant political and legal risk by signing contracts with any party before a national law is passed by the Iraqi Parliament,” said Fleming of the State Department. “It is in the interest of all Iraqi parties to enact a set of national laws to govern the oil and gas industry, and to develop an equitable revenue sharing system.
“All companies which have spoken with the United States government about investing in Iraq’s oil sector have and will continue to be given the same advice,” he said.
Yves Smith 
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Look at a map, and contrast where the oil is, and where the three major ‘ethnic’ groups live. The Sunnis basically get nothing, which the Shia dominated federal government doesn’t find a problem. The same way that the Shia dominated government doesn’t mind the Kurds getting their hands on a major revenue stream to be able to use to defend themselves with – from the Turks, from the Sunnis, etc. Of course, the Turks are utterly opposed to the Kurds being able to create their own state, but this is not a Shia problem, though the Iranians are certainly not in an ideal position if such were to occur.
There were any number of good reasons not to invade Iraq in the early 1990s, and this was just one of them. Iraq is not a functional nation state without a brutal ruler at the top, and though America during the Cold War had no problem supporting brutal rulers, it was always excused through the need to fight communism. Installing our own torturing thugs is only possible domestically, where they get their hands dirty in the White House basement, not internationally.
Quite honestly, the winners of the Iraq war are likely to end up being the Iranians, since the only power structure likely to be able to hold the southern Iraqi oil areas and facilities will be Shia.
The sheer stupidity of Bush’s son is hard to overstate, at least when it comes to the sort of geopolitical mastery which Bush demonstrated – running a major war in the Middle East without Soviet intervention, overseeing the peaceful reunification of Germany, and in general, winding down the Cold War to American advantage, without major wars erupting.
Sometimes, I feel a certain sympathy for Bush, Sr. as he watches his formerly alcoholic son squander America’s legacy, without even having the seeming awareness that he is doing it.
The war in Iraq is about maintaining control over oil – and that is just as much true for those living on top of the oil as for those wanting to burn it.