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Newsletter 34 : BIG CONTRACTS FOR BIG OIL

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After a 35 year wait, American and British oil corporations are on the verge of securing control of Iraq's vast oil reserves. Becca Fisher reveals how the unholy alliance of Big Oil, government and the IMF is getting closer to its goal of reconstructing the Iraqi state to gain secure oil supplies.

The Iraqi cabinet have just this month approved a new Hydrocarbon Law. It is expected to be passed by the Iraqi parliament in the next few months. If passed, this law

will represent a fundamental restructuring of the Iraqi state in order to hand over control of Iraq's oil into foreign hands. It also requires the fundamnetal re-definition of terms like 'sovereignty' and 'democracy'.

COVERT PRIVATISATION



The new law would allow foreign oil companies to sign long term contracts, giving them exclusive rights over Iraq's huge oil fields. Its very terms reflect the public opposition to privatisation in Iraq, as the proposed contracts carefully ensure that the state still owns the oil whilst the company controls production, secures huge rates of profit, and is immune from Iraqi state regulation. As former Iraqi oil minister, Ibrahim Bahr al-Uloum, puts it, 'The Iraqi oil sector needs privatisation but it's a cultural issue'[1]. The solution has been to disguise the plunder in this covert form of privatisation. As Professor Thomas Wälder, oil law expert at the University of Dundee, explains:



'The government can be seen to be running the show and the company can run it behind the camouflage of a legal title symbolising the assertion of national sovereignty.'[2]



Iraqi sovereignty in the oil industry can thus be removed under the guise of state ownership. This smokescreen operates on another level: the law itself is an instance of a wider removal of Iraqi sovereignty, under the guise of democracy.



PHANTOM DEMOCRACY



Iraqi parliamentarians saw the law for the first time in Feburary. As with the rest of the Iraqi public, they have been excluded from the law's inception and its drafting. However, both the US and UK governments, the International Monetary Fund (IMF: the international organisation entrusted with overseeing the global financial system), and major oil companies have been heavily involved from the beginning. For four years they have been collectively pushing through a law which was drafted in private and designed to serve their interests. Their collective efforts illustrate the closely

interdependent relationship between particular governments, corporations and international financial institutions, when their power and interests converge: power to push their interests through the checks and balances democracy is assumed to put in place.



Before the invasion in 2002, the US State Department initiated the 'Future of Iraq Project'. Consisting of 17 working groups which met in Washington and London, it attempted to design the post-war Iraq. The groups featured Iraqi exiles and international consultants picked by the US State Department. Capturing Iraq’s oil was high on the agenda and the 'Oil and Energy' working group, including the future Iraqi Oil Minister Ibrahim Bahr al-Uloum, concluded that Iraq 'should be opened to international oil companies as quickly as possible after the war'[3]. The Coalition Provisional Authority, (the body which controlled Iraq during the first fourteen months after the invasion), appointed former senior executives of oil companies as advisers - from Shell, ExxonMobil, BP and ConocoPhillips. The cost of British advisers, Terry Adams and Bob Morgan of BP, was met by the UK government; they answered to the British Embassy in Iraq. Their sage advice included influencing Iraq’s legal structure. At the time, the US State Department declared,



'We are supporting Iraqi efforts to reach agreement on the new oil law... we are providing detailed technical support for the process as well as providing political support where necessary'[4]



Shrouded in secrecy, the US and UK governments, big oil companies and the IMF pushed for the new oil law. BP, Shell, ExxonMobil, Chevron, Total and Italian oil and gas company ENI have been working through a major lobbying organisation, the International Tax and Investment Centre (ITIC). The document they produced amounts to a hymn of praise for the form of contracts, known as Production Sharing Agreements (PSAs), which are now written into the law[6].

The British government have also been closely involved with the ITIC. UK Foreign Office and Treasury officials have offered advice to the ITIC in how they can influence the Iraqi government. The British Ambassador to Iraq even went so far as to act as a postal service, delivering the ITIC's lobbying document to the Iraqi finance minister. Meanwhile British diplomats in Baghdad, and civil servants in Whitehall, have helped secure direct contact with Iraqi decision-makers for BP and Shell. In answer to a parliamentary question, Foreign Office minister responsible for the Middle East, Kim Howells, admitted that:



'Our work on Iraq's economic and energy sector has included contacts with oil companies...These exchanges have included discussion of Iraq's evolving hydrocarbons legislation where British international oil companies have valuable perspectives to offer'[7].



The IMF too have done their bit for the PSA cause; it has made its involvement in the writing of the law conditional to its debt relief programme. The IMF even attempted to impose deadlines for its passing (though these have been missed). It is pleased with the results as its recent press release shows:



'The government's approval of a new oil and gas law augurs well for the future of the oil sector.'



Further pressure has come from the US government. It has been reported that prime minister Al-Maliki fears that if the parliament does not pass the law by the end of June, he might lose American support, which would effectively oust him from

power[8].



VEIL OF LEGITIMACY



The major players have attempted to give the corporate takeover of Iraq’s oil a veil of legitimacy: a semblance of democracy so that Iraq can be seen as a sovereign state, whilst remaining pliable to the various needs of the occupying powers and multinational corporations. Any real possibility

of democracy is negligible, however. The occupying powers are pushing through an oil law which will deny Iraq ownership of its most valuable resource. Their understanding of 'sovereignty' resembles Colin Powell's definition as something which 'they are going to allow us to exercise on their behalf and with their permission.'[9]



This permission to exercise sovereignty on their behalf has not yet been granted, however. Across Iraq, the occupying forces are stretched to defend themselves against attacks, many targetting the structures and institutions that make up the state, society and political system. PSAs have earned such an unpopular reputation, in Iraq and internationally, that the term has been dropped from the law. Instead, the proposed contracts are called 'Exploration and Risk' contracts, believed to be the same thing.



Iraqi oil workers have fiercely resisted the handover of Iraq's oil to multinational corporations. Ultimately they may be able to stop production and export, and sabotage the oil supplies. At a meeting last December the leaders of the five main union federations in Iraq denounced the PSAs, condemning them as an attempt to 'rob Iraq's national wealth by virtue of unfair, long term oil contracts that undermine the sovereignty of the State and the dignity of the Iraqi people' adding that 'the privatisation of oil is a red line that may not be crossed.'[10] Oil workers have stopped production before in order to secure higher wages and better conditions, and they have reportedly threatened to repeat this over the oil law. The test will be, if and when the law is passed, whether the response is strong enough to resist and survive the repression that will no doubt follow.



It has been a longer process to secure Iraq's oil than many had anticipated. This is because it has required the reconstruction of some basic legal and economic structures, as well as the re-definition of some basic terms. Big Oil has not enjoyed the wait; in July 2003, Sir Philip Watts, chair of Shell, bemoaned the need to wait before they could proceed in Iraq stating:



'There has to be proper security, legitimate authority and a legitimate process... by which we will be able to negotiate agreements that would be longstanding for decades'[11].



But he could be comforted in the knowledge that when the legitimate authority is there on behalf of the people of Iraq, 'we will know and recognise it'[12]. Perhaps because he knew the occupying powers would try to construct it.

References

[1] Greg Muttitt, Crude Designs, p 17, www.carbonweb.org/showitem.asp?article=57&parent=4&link=Y&gp=3

[2] P11, Crude Designs

[3] P16, Crude Designs

[4]'Ben Lando, 'Analysis: Americans say Iraq War over oil', UPI, 25/01/07 http://www.upi.com/ZogbyPoll/view.php?
StoryID=20070125-025759-3252r

[5] www.iticnet.org/publications/Iraq-book.pdf

[6]Platform press release,

www.carbonweb.org/showitem.asp?article=257&parent=39

[7]IMF Press Release www.imf.org/external/np/sec/pr/2007/pr0748.htm

[8] Associated Press aritcle http://tinyurl.com/2ypwog Al- Maliki tells aides U.S. benchmark deadline is June 30 or his ouster possible'

[9]http://news.bbc.co.uk/2/hi/middle_east/3661871.stm

[10] Platform press release www.carbonweb.org/showitem.asp?article=223&parent=39

[11] Carola Hoyas, 'Oil groups snub US on Iraq deals', FT, 24/07/03,

http://search.ft.com/ftArticle?
queryText=oil%2Bgroups%2Bsnub%2BUS%2Bon%2BDeals&y=0&aje=true&x=0&id=030724000471

[12] '..we will know it and recongise it' as before.