Posted on 27-4-2003
Black
Gold Battle Never Ending
By Marc Roche, LE MONDE, April 23, 2003
The Iraqi regime has fallen, the oil wells are practically
intact, and the resumption of exports ought to be technically
possible within a few months. What's left is that George
Bush's desire to lift sanctions against Baghdad as quickly as
possible runs up against a major obstacle: definition of the
legal ownership of Iraq's black gold. "A buyer with any
sense is not going to risk acquiring Iraqi brut as long as the
legal identity of the seller has not been clearly defined.
Clients are terrified by the idea that they could procure oil
from parties who are not legally the owners. The future government
could declare those contracts null and void. We could
be forced to pay twice for deliveries. The amounts involved
are considerable; the game is not worth the candle": the
reservations of this Genevan oil trader accustomed to handling
Iraqi brut sum up the present expectations of his profession.
Since the outset of the war, major international law firms
are advising oil companies and intermediaries to wait until
the installation of an interim authority, of a democratically
elected government even, before investing in Iraq. Today, there
is a complete mess. The only authority in place worthy
of the name is the marketing organization for black gold, the
State Oil Marketing Organization (SOMO), the expertise of which
is universally recognized. Its effectiveness remains handicapped
by its close ties with the former regime.
At present, the only legal structure that exists is the "Oil
for Food" program put in place by the UN in December of
1996 and expiring next June 3. Any new shared production agreement
or production and development contract with a foreign investment
component is contingent on a lifting of sanctions. On
the other hand, repair and drilling contracts escape these restrictions.
At the UN, the struggle promises to be merciless. Those principally
affected, Russia, China, and France, permanent Security Council
Members with veto rights, have no intention of clearing out
for the Americans and the British. "Those are legally our
reserves. If all else fails, we'll go to the Arbitrage Court
in Geneva, which will lead to an immediate freeze on those reserves":
as the premiere Russian oil producer, Lukoil, specified, Moscow
is determined to fight to secure the contracts it signed with
the former regime.
With Lukoil at the front of the line, Russian companies
concluded several contracts with Saddam Hussein's government
for the development of Iraq's oil reserves, second in the world
after Saudi Arabia's. Should they be deprived of these contracts
in post-war Iraq, an appeal to international courts could block
the development of the affected deposits for at least five years.
TotalFinaElf, which signed a protocol of agreement for two of
the five giant oil fields in Majnoun and Bin-Umar, demands in
a more nuanced way that prior undertakings be honored. As for
the Chinese company CNPC, which signed a production sharing
agreement for the Al-Ahdab field in 1997, it has remained very
discrete about its intentions.
Aware of the issue, the Republican Administration would like
to hew a new legal framework. The acknowledged objective is
to support American companies- the Mastodon ExxonMobil and the
Texan and Californian "juniors"- who were shut out
of the Iraqi oil sector before the war. The future oil authorities
could offer some kind of legal immunity, protecting companies
from lawsuits before the courts. New dispositions could,
in addition, interdict the bribes that Russian and Chinese companies
readily practice.
The powerful machinery of the Bush administration holds another
shock weapon in this grabfest: possession of the geological
maps of the Iraqi underground saturated with black gold. In
the same vein, the mysterious company, Petro Consultants, based
in Perly on the Franco-Swiss border, is in possession of masses
of information on this subject. This company, recently
purchased by a British Group, is said to be close to the CIA.
On top of that, the Marines have recovered files and archives
of the Oil Ministry, the only public building in Baghdad to
escape the looters, thanks to their protection.
America would prefer not to share post-war oil benefits. The
game is still not over. Development of Iraqi black gold is strewn
with ambushes. In light of the investment risks, the legal headache,
and stockholder concerns, American companies will hesitate to
go alone in this explosive sector. The general opinion is that
existing contracts should not be annulled, but rather opened
to partners from the victorious coalition.
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