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Posted Online on Friday, 15 December 2006 04:59 IST

Muslim Islamic NewsThe oil connection in the Iraq Study Group report

By Abdus Sattar Ghazali

The Milli Gazette

A group of Iraqi politicians and ministers is close to finishing a draft of a national oil law that, if enacted, would be the most significant legislation passed by the government so far and help narrow some of the country's major political schisms, according to the International Herald Tribune. 

The working draft calls for the central government in Baghdad to collect oil revenues and distribute them to provinces or regions based on population. The law could also encourage foreign investment in the oil industry.

General George W. Casey Jr., the senior American commander in Iraq , and Zalmay Khalilzad, the U.S. ambassador, have urged Iraqi politicians to put the oil law at the top of their agendas, saying it must be passed before the year's end. 

Interestingly, the Iraq Study Group report released on December 6, 2006 emphasized that an equitable oil law was a necessary cornerstone to the process of national reconciliation and thus to ending the war. In a major far reaching recommendation to deal with the situation in Iraq, the report called for opening Iraq to privatize foreign oil and energy companies, providing direct technical assistance for the "drafting" of a new national oil law for Iraq, and assuring that all of Iraq's oil revenues accrue to the central government. 

The ISG said: "Expanding oil production in Iraq over the long term will require creating corporate structures, establishing management systems, and installing competent managers to plan and oversee an ambitious list of major oil-field investment projects….The United States should encourage investment in Iraq 's oil sector by the international community and by international energy companies."

It may be recalled that President Bush hired an employee from the U.S. consultancy firm Bearing Point Inc. over a year ago to advise the Iraq Oil Ministry on the drafting and passage of a new national oil law. As previously drafted, the law opens Iraq's nationalized oil sector to private foreign corporate investment, but stops short of full privatization. 

The ISG report, however, goes further, stating that "the United States should assist Iraqi leaders to reorganize the national oil industry as a commercial enterprise." In addition, the current Constitution of Iraq is ambiguous as to whether control over Iraq's oil should be shared among its regional provinces or held under the central government. 

The Iraqi Constitution, drafted under US supervision, leaves the door open for regions to take the lead in developing new oil resources. Article 108 states that "oil and gas are the ownership of all the peoples of Iraq in all the regions and governorates," while Article 109 tasks the federal government with "the management of oil and gas extracted from current fields." This language has led to contention over what constitutes a "new" or an "existing" resource, a question that has profound ramifications for the ultimate control of future oil revenue. 

If the ISG proposals are followed, Iraq's national oil industry will be privatized and opened to foreign firms and in control of all of Iraq's oil wealth, says Antonia Juhasz, author of "The Bush Agenda: Invading the World, One Economy at a Time. 

However, the proposals should not come as a surprise given that two authors of the report, James A. Baker III and Lawrence Eagleburger, have each spent much of their political and corporate careers in pursuit of greater access to Iraq's oil and wealth.

Juhasz, in his recent article "Oil for Sale: Iraq Study Group Recommends Privatization," points out that "pragmatist" is the word most often used to describe Iraq Study Group co-chair James A. Baker III. It is equally appropriate for Lawrence Eagleburger. The term applies particularly well to each man's efforts to expand U.S. economic engagement with Saddam Hussein throughout the 1980s and early 1990s. Not only did their efforts enrich Hussein and U.S. corporations, particularly oil companies, it also served the interests of their own private firms. 

This past July, U.S. Energy Secretary Bodman announced in Baghdad that senior U.S. oil company executives would not enter Iraq without passage of the new law. Petroleum Economist magazine later reported that U.S. oil companies put passage of the oil law before security concerns as the deciding factor over their entry into Iraq. 

Put simply, Antonia Juhasz argues, the oil companies are trying to get what they were denied before the war or at anytime in modern Iraqi history: access to Iraq's oil under the ground. 

Confidential document on Iraq oil lobbying 

Tellingly, a confidential 2003 document gives some insight into the Coalition governments' interest to parcel out Iraq's major oil fields. This is the record of a secret meeting in London on May 19, 2003 between the Australian Minister for Foreign Affairs, Alexander Downer, and executives of the Australian conglomerate BHP Billiton. The document is relatively short, but it is rich in implications and enticing in details, according to James Paul of the Global Policy Forum. Here is a summary of the comments made during the meeting revealing some unknown aspects of the matter: 

1. There are five "strategic" undeveloped oil fields in southern Iraq that are especially interesting to major oil companies because of their exceptionally large size. The Halfayah field, coveted by BHP Billiton, contains five billion barrels of recoverable oil, making it one of the world's largest. Development of the field would cost, according to BHP, about $2 billion. 

2. Iraq has extensive additional oil potential, with seventy percent of the country unexplored. Iraq also has extensive undeveloped gas deposits. 

3. In the mid 1990s, there had been secret negotiations between a number of foreign companies and the government of Saddam Hussein. In 1996/97, BHP was ready to sign an agreement on Halfayah, while French, Russian and Italian companies were also ready with contracts for other key fields. 

4. The contracts were not signed because of UN sanctions. BHP was also in conversations with the Iraqis about oil exploration in the Western desert. 

5. In 2000, BHP had transferred any existing "rights" it had in the Halfayah field to a joint venture led by another company, Tigris Petroleum, incorporated in Gibraltar and headed by senior BHP executives who negotiated the original contract. Tigris is described by BHP management at the meeting as "responsible for maintaining relationships with Iraq by working on oil for food related projects." 

6. BHP and Tigris had been "in discussions" with Shell, the Anglo-Dutch oil major, to bring Shell into the Halfayah development scheme. Shell was being offered a 40% share of the joint venture consortium, while BHP was to keep 40%. Shell was seen by BHP as bringing not only technical and financial benefit but also "political" support. 

7. BHP emphasizes that its previous oil field studies at Halfayah, its plans for developing the field and its existing agreements with the Iraqis would allow a very fast startup for the project. BHP also emphasizes that the participation of Shell (said to be "another multinational from a Coalition country") would lend to the political success of the venture. 

8. Sir Malcolm (Middle East Consultant to the Halfayah oil fields) urges BHP to "register" its interest with the " US administration," noting that the United States "would seek to protect its commercial interest in Iraq" and reminding BHP that "existing consortia are being encouraged to take on US partners." The claim "required lobbying – including from the Australian government – in Washington." 

9. Sir Malcolm had already been very active as a lobbyist. He had had conversations with the UK Foreign Office on May 19 about the BHP matter. BHP had also "briefed" the Australian Prime Minister's office and other ministries. And there was a plan (presumably by Sir Malcolm) to lobby Downing Street (the office of the UK Prime Minister). The lobbying effort would also go to Washington "next week," where "the consortium" would brief the Australian embassy and the State Department. Sir Malcolm would also meet with Vice President Cheney "when the opportunity arose." 

10. Mr. Downer said he would be happy to talk would the US about the Halfayah oil field…The question of new oil fields would be a very sensitive one. It played into sensitivities over the war. The coalition had been clear there would not be blood for oil. The Australian government said sincerely that it had not joined coalition forces on the basis of oil. [Downers comments were ironic, given the context of the secret meeting in London that he is attending.]

11. Mr. Downer agreed that he will lobby for the company's Halfayah interest, both in Washington and with the US proconsul Paul Bremer in Baghdad . He said he would have it raised with the Oil Ministry in Baghdad….No doubt those charged with the issue in Washington had been scrutinizing commercial interests in the oil fields. 

Reverting to the ISG report recommendations on the oil sector which confirm that control of Iraqi oil is a fundamental premise of the Bush Administration policy. Recommendation 62 says the US government should help draft an oil law that "creates a fiscal and legal framework for investment." Recommendation 63 says the US should "assist" Iraqi leaders in privatizing the national oil industry into a "commercial enterprise" to encourage investment by the multinational oil companies. It will not be too much to say that these recommendations belie claims that it was not about blood for oil. 

Iraq has the world's second largest proven oil reserves. According to oil industry experts, new exploration will probably raise Iraq's reserves to 200+ billion barrels of high-grade crude, extraordinarily cheap to produce. 

Abdus Sattar Ghazali is the Executive Editor of the online magazine, the American Muslim Perspective: www.amperspective.com

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