The door to Iraq's oil opens  

The Asia Times has an excellent article on Iraqi oil minister Hussain al-Shahristani, now taking on "the decider" role given the failure of the proposed oil law to pass through Iraq's parliament, and his role in determining who gets to exploit the greatest prize of all. The report notes that the new mechanism for handing over the oil is almost as unpopular with the Iraqi population (ie. the owners) as the legislated handing over of the oil...

The cynosure of Western eyes at the meeting of the Organization of Petroleum Exporting Countries, commonly known as OPEC, in Abu Dhabi, the United Arab Emirates, last December 5 was an unexpected personality - Iraqi Oil Minister Hussain al-Shahristani. But that wasn't a chance occurrence. By the time OPEC gathered in Vienna six weeks later, it was beyond doubt that Shahristani was on the way to becoming a celebrity in the West.

Shahristani is "a rare thing" in politics, to quote Toby Lodge, the well-known scholar on Iraq at the International Institute of Strategic Studies in London - "not too religious, not too political, not too secular, not too pro-American Shi'ite who [Grand Ayatollah Ali] Sistani would talk to".

But for the ease with which Shahristani traversed in his later years the dividing line that separates religiosity and idealism from worldliness and pragmatism, Shahristani would have become a cult figure for human-rights activists, given his extraordinary background as a top nuclear scientist who turned a stubborn dissident, and then a reckless jail breaker from Saddam Hussein's Abu Ghraib prison where he was tortured and tucked away in solitary confinement for an impossibly long 10 years till 1991.

But in Abu Dhabi, if Shahristani became a rising star for the Western media, that was for an entirely different reason. It was hardly metaphysical. Plainly speaking, the media had good enough reason to flatter him and pamper his vanities.

Of course, the soft-spoken, English-speaking Iraqi Shi'ite dissident leader was a familiar face in Western capitals through the 1990s. But today, he is no longer a political fugitive. He is no longer an Iraqi dissident seeking patronage. On the contrary, Shahristani finds himself in an enviable position as a creator of wealth for the Western world. He holds the key to the door that opens out to the magical world of Iraqi oil.

Iraq's proven reserves of oil are only smaller than those of Saudi Arabia and Iran - and Iraq is only about 30% explored. Experts are generally of the view that Iraq's actual oil reserves could well turn out to be at least double the 115 billion barrels of proven reserves. Beyond that, it is anybody's guess as to the scale of Iraq's as-yet-untapped gas reserves.

And Shahristani is visibly getting ready to negotiate the contracts for Iraq's "super giants". In the idiom of Big Oil, "super giants" are fields with at least five billion barrels of oil in reserve. Iraq's super giants are Kirkuk (in Kurdistan), Majnoon (bordering Iran), Rumaila North and South (in the south), West Qurna (west of Basra) and Zubair (in the southeast) fields, and, possibly, the Nahr Umr and East Baghdad fields. In addition, Iraq is estimated to have 22 "giant" fields, each having more than 1 billion barrels of oil.

In fact, Iraq may host the largest untapped reserves in the world. There is a strong likelihood that Iraq's reserves may turn out to be exponentially higher than the current estimations, which are based on old-style seismic surveys. All said, unsurprisingly, the world oil market is in a tizzy when Shahristani says something, anything. He is about to sign the contracts for these and many other large Iraqi oil-producing fields. ...

Yetiv and Feld, with much hesitancy, proceed to make an absolutely unthinkable suggestion that the Saudi reluctance might be borne out of a possibility that Riyadh is "getting global markets ready for the possibility that they may not have enough oil to be a long-term fuel pump to the world".

After all, it merits attention that the US Energy Information Administration (EIA) significantly has revised its earlier 2000 prediction about how much oil Saudi Arabia would produce in 2010. The EIA scaled back the figure from 14.7 million barrels per day to just 11.4 million barrels per day. That is a major reduction. (Feld, incidentally, worked for 17 years for the US Department of Energy.)

In the current circumstances of the world energy scene, the above underscores why any plan to hasten the US effort to achieve greater oil independence translates in political terms as taking control of Iraq's oil reserves. There is simply no other viable alternative open to the US. Essentially, it boils down to the 20 words that the former US Federal Bank chief Alan Greenspan wrote towards the end of his memoir, The Age of Turbulence: Adventures in a New World, "I am saddened that it is politically inconvenient to acknowledge what everyone knows: The Iraq war is largely about oil." ...

Therefore, it becomes imperative that Iraq plays a major role in meeting the additional global demand of 30 mn b/d during the coming two decades. There is yet another side to it. Peak oil - when global oil production will reach a peak and then begin to fall - is a real possibility sooner or later. It has happened in the US; it is happening in Britain, the North Sea and Indonesia; it is expected to happen in Mexico and some other major oil producing countries during the coming five-year period.

In this scenario, the criticality of Iraqi oil production cannot but be overstated. Furthermore, Iraq is particularly blessed in certain other ways. Apart from its massive reserves of oil and gas, the cost of oil production in Iraq at US$1 to $2 per barrel is very low. Second, the oil fields are dispersed evenly across the country. Third, Iraq's location itself is a boon. Unlike, say, the Caspian, Siberia or the Arctic, it is easy to develop oil export routes out of Iraq heading in several directions simultaneously - the Persian Gulf, Saudi Arabia, Kuwait, Jordan, Syria and Turkey. All this means that rapid expansion of Iraq's oil production and the arrival of substantial amounts of Iraqi oil - exceeding 10 mn b/d - in the international market is an attainable objective. ...

In sum, as Ben Lando, United Press International's energy editor put it, "Big Oil's big dreams are close to coming true ... According to insiders, Shell, which produced a technical study of Kirkuk in 2005, wants a deal for the field. BP wants one for Rumaila, which it studied last year. Shell and BHP Billiton are angling for the Missan field in the south. ExxonMobil is interested in the southern Zubair field while the Sabha and Luhais fields are being targeted by Dome and Anadarko Petroleum. ConocoPhillips is talking with the [Iraqi] ministry about the West Qurna oil field ... Chevron and Total have teamed up in a bid for the Majnoon field."

No doubt, it is pay-off time for the four majors who didn't make an issue of the US military occupation of Iraq or the ensuing mess-ups during Paul Bremer's rule or the ensuing acute security situation, but kept going with their nose on the ground and worked with the Iraqi ministry during the past four years in conducting reservoir surveys, assisting in the drawing up of work plans and in training personnel. These oil majors simply chose to be around in Baghdad even when much of the oil industry was idling. Lando adds, "While service contracts would be highly profitable for companies, Big Oil wants risk contracts. Such deals are usually long term, covering its exploration costs and guaranteeing a profit if oil is found, and allowing them to put the reserves it discovers on the books, a boon in Wall Street's eyes." ...

Of course, Shahristani is skating on thin ice. His moves, despite the robust backing by the Bush administration, are political and highly controversial. The point is, Shahristani is virtually in a position to hand out jackpots to the oil majors. Everyone knows that apart from the security factor, the risk in exploring for crude in Iraq is virtually nil. "Historically it [oil] has been easy to find, inexpensive to produce and top quality", Lando points out.

Washington counts on Shahristani to push the oil deals through despite the vehement opposition within Iraq. First, about 70% of Iraqis firmly oppose what Shahristani is attempting. The Iraqis see what is happening as a capitulation of their national sovereignty. Iraqis look back at the nationalization of their oil industry in 1972 as a source of pride and empowerment. Second, there is vehement opposition from the labor unions in the Iraqi oil industry. They say that Iraq could increase its oil production by investing its own money and there is no pressing need at this juncture to solicit foreign investment.

Indeed, in 2006, the Iraqi Oil Ministry could only utilize 3% of its $3.5 billion reconstruction budget. The US Defense Department in a December 2007 report acknowledged, "The lack of capacity in contracting, the lack of trained budget personnel, concern about corruption and numerous other systemic structural impediments hamper faster execution."

Iraq's oil exports in 2007 brought in $35.5 billion, according to the US State Department. But a study by the Washington Times newspaper in January concluded, "Increased oil revenues stemming from high prices and improved security are piling up in the Federal Reserve Bank of New York rather than being spent on needed reconstruction projects."

To be sure, the Iraqi labor unions have a point when they say that foreign investment is not the real need for the oil industry currently, but rather the ability to invest the surplus budget. Again, the labor unions are questioning the need of foreign expertise. They insist that national expertise is available within Iraq. The fact remains that in spite of Saddam's gross mismanagement of the oil industry, Iraq had built up over the years a significant reservoir of manpower with a range of technical expertise.

"If they [Oil Ministry] are prepared to allocate more funding and spend the resources that already exist, there would be improvement and we could recruit more workers," Hassan Jumaa Awad, president of the umbrella Iraqi Federation of Oil Unions recently told the United Press International news agency. Awad alleged that Shahristani is following a "deliberate" policy of shunning domestic investment with a view to make Iraqi oil workers look incapable.

The labor unions have now sought the help of the international labor community to their demands, which also question Shahristani's intentions in awarding to international oil firms concession or risk contracts such as production-sharing agreements. Awad calls for an Iraqi oil law, "but we need to gain our full sovereignty before such a law is enacted", and he insists that if a law is to be passed, it should be approved by Iraqi voters in a referendum.

Iraq's oil unions and civil society organizations have joined hands in alleging that Washington and the present authorities in Baghdad, especially the Oil Ministry, are conspiring to hand over control over Iraq's oil to oil majors. The news agencies reported that protesters who fear that Iraq's oil wealth might be squandered met at a Middle East oil conference on February 5 in London where Iraqi and British oil industry leaders attended.