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Oil giants return to iraq
1. Oil Giants Return To Iraq
Shell, BP, Exxon Mobil and Total set to sign deal with Baghdad
by Patrick Cockburn
Nearly four decades after the four biggest Western oil companies were expelled from
Iraq by Saddam Hussein, they are negotiating their return. By the end of the month,
Royal Dutch Shell, BP, Exxon Mobil and Total will sign agreements with the Baghdad
government, Iraq's first with big Western oil firms since the US-led invasion in 2003.
The deals are for repair and technical support in some of the country's largest oilfields,
the Oil Ministry in Baghdad said yesterday. The return of "Big Oil" will add to the
suspicions of those in the Middle East who claimed that the overthrow of Saddam was
secretly driven by the West's desire to gain control of Iraq's oil. It will also be greeted
with dismay by many Iraqis who fear losing control of their vast oil reserves.
Iraq's reserves are believed to be second only to Saudi Arabia in the Middle East, but
their exploitation has long been hampered by UN sanctions, imposed on Iraq after
Saddam Hussein invaded Kuwait in 1990.
The major oil companies have been eager to go back to Iraq, but are concerned about
their own security and the long-term stability of the country. The two-year no-bid
agreements are service agreements that should add another 500,000 barrels of crude a
day of output to Iraq's present production of 2.5 million barrels a day (b/d).
The companies have the option of being paid in cash or crude oil for the deals, each of
which will reportedly be worth $500m (ÂŁ250m). For Iraq, the agreements are a way of
accessing foreign expertise immediately, before the Iraqi parliament passes a
controversial new hydrocarbons law.
But they mean that the four oil companies, which originally formed the Iraq Petroleum
Company to exploit Iraqi oil from the 1920s until the industry's nationalisation in 1972,
will be well-placed to bid for contracts for the long-term development of these fields.
The oilfields affected are some of the largest in Iraq, from Kirkuk in the north to
Rumaila, on the border with Kuwait. Although there is oil in northern Iraq, most of the
reserves are close to Basra, in the far south.
Since the US invasion, Iraqis have been wary of foreign involvement in their oil industry.
Many are convinced that the hidden purpose of the US invasion was to take over Iraqi
oil, but the Iraqi Oil Minister, Hussein Shahristani, has said that Iraq will hold on to its
2. natural resources. "If Iraq needs help from international oil companies, they will be
invited to co-operate with the Iraqi National Oil Company [Inoc], on terms and
conditions acceptable to Iraq, to generate the highest revenue for Iraq".
Inoc's technical expertise has deteriorated sharply during the long years of sanctions.
Iraq is currently exporting 2.1 million b/d and is expecting to have oil revenues of $70bn
this year, but its government administration is too dysfunctional and corrupt to rebuild
the electricity or water supply systems. The government has $50bn in the Federal Bank
of New York.
Mr Shahristani has been highly critical of the Kurdistan Regional Government (KRG) for
auctioning off oil concessions in Iraqi Kurdistan without reference to the oil ministry in
Baghdad. In an interview with The Independent last year, he said Inoc would never do
business with any oil company that signed up with the KRG, and he also doubted if the
oil could be exported without pipelines. "Are they going to carry it out in buckets?" he
asked.
Several of the small oil companies who have signed contracts in Kurdistan are hoping
that in the long term there will be an agreement between the Kurds and the central
government and they will then sell out to the majors at a large profit.
The technical support agreements, as the service agreements are known, may open the
door to Iraq for the majors. Mr Shahristani has said that Iraq will open up the same
fields for bidding for long-term development projects soon. "We're going to announce
the first licensing round by the end of this month or early next month," he said.
The high price of oil means that Iraq is not under immediate pressure to maximise its oil
revenues. The Iraqi parliament has suspected anything which looks like giving foreign
companies ownership of Iraq's oil through a production sharing agreement.
The nationalisation of Iraq's oil is one the few acts of Saddam Hussein's long years in
power which is still highly popular, and Iraqi members of parliament are fearful of
anything that looks like back-door privatisation in the interests of foreigners.
Big four have history of control
For the four oil giants, the new agreements will bring them back to a country where
they have a long history. BP, Exxon Mobil, Total and Shell were co-owners of a British,
American and French consortium that kept Iraq's oil reserves in foreign control for more
than 40 years.
3. The Iraq Petroleum Company (once the Turkish Petroleum Company) was formed in
1912 by oil companies eager to grab the resources in parts of the Ottoman Empire.
The company was formalised in 1928 and each of the four shareholders had a 23.75 per
cent share of all the oil produced. The final 5 per cent went to Calouste Gulbenkian, an
Armenian businessman.
In 1931, an agreement was signed with Iraq, giving the company complete control over
the oi fields of Mosul in return for annual royalties. After Saddam's coup in 1958,
nationalisation came in 1972.