World - Iraq puts oil reserves up for sale

Terry Macalister & Nicholas Watt

Iraq has put up 40 billion barrels of recoverable reserves up for offer in London. It is the biggest sale of oil assets ever. BP, Shell and ExxonMobil are all expected to attend a meeting at the Park Lane Hotel in London’s Mayfair with the Iraqi Oil Minister, Hussein al-Shahristani. Access is being given to eight fields, representing about 40 per cent of the nation’s reserves, at a time when the country remains under occupation by U.S. and British forces.

Two smaller agreements have already been signed with Shell and the China National Petroleum Corporation (CNPC), but the sale — which was scheduled to be held on Monday — will ignite arguments over whether the overthrow of Saddam Hussein was a “war for oil” that is now to be consummated by western multinationals seizing control of strategic Iraqi reserves.

Mr. Al-Shahristani is expected to reveal some kind of “risk service agreements” that could run for up to 20 years, with formal offers to be submitted by next spring and agreements signed in the summer. Gregg Muttitt, from the U.K.-based social and ecological justice group Platform, said he is alarmed the government is pushing ahead with its plans without the support of many in Iraq.

Risks involved


“Most of the terms of what is being offered have not been disclosed. There are security, political and reputational risks here for oil companies but none of them will want to see one of their competitors gain an advantage,” he said. Heinrich Matthee, a senior West Asia analyst at Control Risks Group, also believes there are many pitfalls for those considering whether to make an offer.

“Currently it is unclear which party in Iraq is authorised to award a contract and at the same time to deliver its side of the bargain,” he said, adding: “Any contract with an independent oil company will be subjected to opposition and possible revision after pressure by resource nationalists.” Oil companies would find their reputations at risk from the actions of their Iraqi counterparties, such as joint venture partners, suppliers and agents. They would also have to contend with oil smuggling and the possibility that the ruling alliance could collapse, said Mr. Matthee.

If the conspiracy theory that western oil companies egged on U.S. and British governments to invade Iraq were true, the plan could backfire on them and benefit rivals in Asia instead, he said, adding: “It is possible the American Army has provided the economic stability that will encourage Malaysian, Chinese and other Asian companies to become involved.”

There is no precedent for proven oil reserves of this magnitude being offered up for sale, said Mr. Muttitt. “The nearest thing would be the post-Soviet sale of the Kashagan field [in the Caspian Sea], which had 7-8 billion barrels,” he said. CNPC has already agreed a $3-billion oil services contract with Iraq to pump oil from the Ahdab oilfield. The deal is the first major oil contract with a foreign firm since the U.S.-led war and was followed up by an agreement with Shell, potentially worth $4 billion, to develop a joint venture with the South Gas Company in Basra.

This deal has also triggered controversy. Issam al-Chalabi, Iraq’s Oil Minister between 1987 and 1990, questioned why there had been no competitive tendering for the gas-gathering contract and claimed it had gone to Shell as the spoils of war. “Why choose Shell when you could have chosen ExxonMobil, Chevron, BG or Gazprom,” he asked. “Shell appears to be paying $4 billion to get hold of assets that in 20 years could be worth $40 billion. Iraq is giving away half its gas wealth and yet this work could have been done by Iraq itself,” he added.

Monday’s sale comes as oil prices have plummeted after the recent stock market turmoil. — © Guardian Newspapers Limited, 2008