Iraq's oil industry post-2003

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During the insurgency

According to industry analyst Daniel Yergin, in 2003 the Iraqi oil industry was suffering from years of neglect and lack of investment, as well as chaotic management following the collapse of the Ba'athist regime. At this stage, of 80 discovered oil fields only 23 had been put into production due to the disruption of war and sanctions in place since the 1980s. Thamir Ghadhban (who became head of the Ministry of Oil) and Philip Carroll (former CEO of Shell Oil USA) became the core of the team charged with reviving the industry. The two men set a target of reaching a production level of 3 million barrels per day (bpd) by the end of 2004. Carroll stated that the urgent priority for the restoration of the oil industry and the rest of the economy must be security.[1]

As the anti-American insurgency began to intensify and the security situation deteriorated, oil industry infrastructure also came under attack. Pipelines were regularly bombed from 2003 onwards[2] and in 2004, insurgents mounted an attack against the Al-Amiya platform using suicide bombers in three small crafts, which reached within 30 yards of the installation before they were shot by Iraqi guards.[3]

From the fall of Saddam up until 2008, there were well over 300 incidents affecting the integrity of oil facilities, and oil production remained below target levels. Production fell short of the goals set and the new goal for oil production in 2007 was dropped in 2006 to 2.1 million bpd.[4]

Restructuring of economy in occupied Iraq

On the 22 May 2003, the United Nations Security Council passed Resolution 1483, abolishing sanctions against Iraq and recognizing the US and the UK as the country's occupying powers.[5]

On the 20 September 2003, Order 39 was issued by Paul Bremer, head of the Coalition Provisional Authority (CPA), the transitional government established by the US and its allies following the invasion of Iraq. This order abolished Iraq's ban on foreign investment, allowing foreigners to own up to 100% of all sectors other than natural resources. Over 200 state enterprises, including electricity, telecommunications and pharmaceuticals were privatized.[6] Under the reforms, income and corporate taxes were capped at 15% and tarrifs slashed to a universal 5% rate, however with none imposed on food, drugs, books and other 'humanitarian' imports.[7]

The reforms implemented were described by World Bank economist Joseph Stiglitz as 'an even more radical form of shock therapy than pursued in the former Soviet world.'[8] and Iraq was branded by the Economist magazine as a 'capitalist dream'.[9] BBC correspondent Nick Springate warned at the time that many Iraqis may see the moves to privatize as a 'sell-off', with US multinationals seen to get the majority of the 'rewards'. However US Treasury Secretary John Snow rejected the suggestion that the US dominated the drafting of reforms, asserting that they were based on the ideas of the Iraqi Governing Council.[10]

As of June 2010 the United States had allocated $1.9 billion to the Iraqi oil and gas sector with the objective of modernisation, but ended its direct involvement in the first quarter of 2008. According to reports by US government agencies and international organisations, long-term Iraq reconstruction costs could reach $100 billion or higher.[11]

Proposed new legislation

(For further detail please see Hydrocarbon Legislation in Iraq)

In February 2007 the US-backed Iraqi cabinet approved the first draft of a new Oil and Gas Law which would give foreign companies the long-term contracts and safe legal framework they had been seeking.

Some analysts and labour groups criticized the process of the drafting of the law, warning that it is skewed in favour of foreign firms and that it could heighten tensions and spread instability. The initial draft specified that up to two thirds of Iraq's known reserves would be developed by multinationals under contracts lasting for 15 to 20 years. This would represent a break from normal practice in the Middle East, according to IPS, and civil society groups and union leaders complained that they had been left out of the drafting process. Critics claimed that under the law, ownership of the oil reserves would remain with the state in form, but not in substance.[12] Following repeated delays and several further drafts, as of late 2012 no framework hydrocarbons law had yet been passed for Iraq.

The prospect of the privatization of Iraq's oil industry was particularly opposed by trade unions in occupied Iraq, and was described by the UK's Guardian as 'a red line' for the unions and a 'red rag' to the workers on the front line. They vowed to resist any privatisation of what they see as their national assets.[13] Concerned that the new hydrocarbon legislation would lead Iraq's oil industry to full privatisation, in February 2007 the labour unions sent a letter to Iraqi President Jalal Talbani urging him to reconsider the Oil Law draft, commenting that 'production-sharing agreements are a relic of the 1960s... they will re-imprison the Iraqi economy and impinge on Iraq's sovereignty since they only preserve the interests of foreign companies." Officials from the Iraqi government defended the law, saying it represented a step forward for the war-torn country and that oil revenues would be distributed to all 18 provinces based on population size, and regional administrations would have the authority to negotiate contracts with international oil companies.[14]

Licensing rounds 2009-2012

(For further detail, see separate articles on individual bidding rounds).

Hussein Shahristani, a nuclear scientist by training who had been imprisoned during Hussein's regime, returned from exile in Canada and was appointed as Oil Minister in 2006. He was to oversee upcoming bidding rounds and was deemed by Iraq Energy News as the 'architect of Iraq's oil future'.[15]

Under his mandate, from 2009 onwards Iraq held a series of open bidding rounds for oil contracts, beginning with the first licensing round which took place in 2009, which experienced varying levels of success. These became the main avenue for foreign companies looking to invest in the sector after a 2008 decision by the Iraqi government to scrap plans to award no-bid short-term contracts to a handful of Western companies, including Chevron, ExxonMobil, Total and BP.[16]

The contracts on offer at the bidding rounds were technical service contracts, by which companies are paid on the basis of a per-barrel fee for the oil they extract.[17]

References

  1. Yergin, Daniel, "The Quest", Penguin Press, London, 2011.
  2. "Iraq Pipeline Watch" IAGS, retrieved 24 November 2011.
  3. "Iraq oil hopes hinge on shielding industry" Energy Daily 8 October 2010.
  4. Cordesman, Anthony and Davies, Emma "Iraq's insurgency and the road to civil conflict", Greenwood Publishing Group, 2008.
  5. "Resolution 1483" UN Security Council 22 May 2003.
  6. "Coalition Provisional Authority Order Number 39", Iraq Coalition, retrieved 25 November 2011.
  7. "Let's all go to the yard sale", Economist, 25 September 2003.
  8. "Baghdad Year Zero", Harpers, September 2004.
  9. "Let's all go to the yard sale" Economist, 25 September 2003.
  10. "Iraq adopts sweeping reforms", BBC, 21 September 2003.
  11. "Doing Business in Iraq", US Commercial Service, 2012.
  12. "New Oil Law Seen as Cover for Privatisation" IPS, 27 February 2007.
  13. "Oil and troubled waters" Guardian, 9 July 2008.
  14. "New Oil Law Seen as Cover for Privatisation" IPS, 27 February 2007.
  15. "Shahristani, Architect of Iraq's Oil Future" Iraq Energy News, 17 January 2011.
  16. "Iraq Rejects No-Bid Contracts", Washington Post, 12 September 2008.
  17. "Oil Companies Reject Iraq's Contract Terms", Wall Street Journal, 1 July 2009.