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A slippery business

A draft Iraqi oil law fulfils the economic goal of the war and occupation, writes AG Noorani.
None | By AG Noorani
UPDATED ON APR 23, 2007 11:32 PM IST

More than three-quarters of the world’s oil is owned and controlled by the State. Iran, Saudi Arabia and Kuwait have nationalised oil systems and bar foreign control over oil development. Foreign companies are hired only to provide specific services, for limited terms. They are given no direct interest in the oil produced. Iraq’s oil resources are estimated to be the second largest in the world. The draft Iraqi oil law would all but privatise Iraq’s oil industry under the cloak of “production-sharing agreements”.

Iraq’s five trade union federations, representing hundreds of thousands of workers, oppose the law. It would entail “the handing of control over oil to foreign companies, which would undermine the sovereignty of the State and the dignity of the people”. On February 8, they wrote to President Jalal Talbani asking him not to assent to the law. “Production-sharing agreements are a relic of the 1960s. They will imprison Iraq’s economy and infringe on Iraq’s sovereignty... We warn against falling into this trap.”

The law was approved by the Iraqi cabinet on February 26 and is up for enactment by the Council of Representatives. Everything is fixed. The outgoing US ambassador, Zalmay Khalilzad, said, “Companion legislation will be required in several areas, and Iraqi leaders hope to complete the entire hydrocarbon legislation by the end of May.”

It would be a pity if India’s trade unions withhold their support to Iraq’s trade unions in the grim battles that lie ahead. The draft law has been exposed by two erudite and courageous activists — Ewa Jasiewicz, a researcher at Platform, a British human rights and environment group that monitors the oil industry, and Antonia Juhasz, the Tarbell Fellow at Oil Change International and Visiting Scholar at the Institute for Policy Studies.

The draft was prepared deviously. The trade unions were kept out. Jasiewicz noted, “It has not been put together in any kind of democratic process... It’s been put through a war and an occupation which in itself is a grotesquely undemocratic process. It was prepared by a three-member Iraqi cabinet committee, dominated by the Kurds and the Shiites. The first draft was seen only by the committee of the Iraqi technocrat who penned it, nine international oil companies, the British and the US governments and the IMF.”

There are 1,40,000 US troops on Iraqi soil. Jesiewicz added, “The law can be regarded as the economic goal of the war and occupation and that it will be viewed by most Iraqis as not just illegitimate, but a war crime.” The name of the game is ‘the production-sharing agreement’. It is “a form of privatisation and that’s why those countries (Saudi Arabia, Iran and Kuwait) haven’t signed these, because it’s not in their interests.”

Iraq’s oil professionals advocate technical service/contracts under which a company renders services for a fee and then quits. They cover building a refinery, laying a pipeline, or offering consultancy services. Exploration, production and development of oil remain exclusively under State control. The companies have no legal interest in the oil. The profits belong to the State. In ‘production-sharing’, they go to the multinationals.

Juhasz writes: “The Iraq National Oil Company would have exclusive control of just 17 of Iraq’s 80 known oil fields, leaving two-thirds of known — and all of its as yet undiscovered — fields open to foreign control. The foreign companies would not have to invest their earnings to the Iraqi economy, partner with Iraqi companies, hire Iraqi workers or share new technologies. They could even ride out Iraq’s current ‘instability’ by signing contracts now, while the Iraqi government is at its weakest, and then wait at least two years before even setting foot in the country.”

Production-sharing agreements are the oil industry’s preferred model, but are rejected by all the top oil-producing countries in West Asia because “they grant long-term contracts (20 to 35 years, in the case of Iraq’s draft law) and greater control, ownership and profits to the companies than other models. In fact, they are used for only approximately 12 per cent of the world’s oil.”

The US invasion fragmented the Iraqi State. The draft law confers on the regions power to negotiate contracts with the multinationals. True, oil revenues would be distributed to all the 18 provinces, depending on the size of the population. The law also professes to preserve Iraq’s unity, but only to splinter it. It confirms the ownership of oil and gas as national property, only to facilitate its barter to multinationals.

A perusal of the 43-Article Draft Law makes one understand the outrage it has unleashed. Double-talks begins with the preamble and animates the text. A recital of national ownership is followed by this admission! “The oil activities operated solely by the Ministry of Oil have to be transferred to technical and commercial entities and institutions, including an independent national Iraqi oil company, and the Iraqi provinces and regions should be given more authorities... the rehabilitation and further development of the petroleum industry will be enhanced by the participation of international and national investors of recognised technical, managerial and operational skills as well as robust capital resources to help upgrade and develop national expertise and efficiency in the petroleum sector.”

The very purpose of the law is “the introduction of a variety of national and international players in the development of the petroleum sector”. Article 1 grandiloquently proclaims national ownership of oil and gas. But the key provision is Article 9 on the ‘Grant of Rights’. It reads, “The rights for conducting Petroleum Operations shall be granted on the basis of an Exploration and Production contract. The contract shall be entered between the Ministry (or the regional entity) and an Iraqi or Foreign Person, natural or legal, which has demonstrated to the Ministry the technical competence and financial capability that are adequate for the efficient conduct of Petroleum Operations...” Article 4(19) defines ‘petroleum operations’ to mean “all or any of the activities related to exploration, development, production, separation and treatment, storage, transportation and sale or delivery of petroleum at the delivery point, export point or to the agreed supply point inside or outside Iraq. And includes Natural Gas treatment operations and the closure of all concluded activities.”

Iraq would not have made so radical a break from the past were it not for the US occupation. Disputes will not be resolved in Iraqi courts but in arbitration proceedings in Paris or at the Chamber of Commerce in Geneva. Antonia Juhasz recalls that “in March 2001, the National Energy Policy Development Group (better known as US Vice-President Dick Cheney’s energy task force), which included executives of America’s largest energy companies, recommended that the US government support initiatives by West Asian countries “to open up areas of their energy sectors to foreign investment”.

This is exactly what the proposed Iraq oil law would achieve. It has happened before. Iran’s popular Prime Minister Mohammad Moasddeq was toppled by the US and Britain in 1953 after he nationalised the oil industry. With the oil law, the rape of Iraq will be complete.

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