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.