How will Iraq share the oil?
In the US, the demand that Iraq pass an oil law is a 'benchmark' that is becoming a flashpoint.
from the May 18, 2007 edition
Page 3 of 3
At least one 'red flag'
In New York, oil industry analyst Fadel Gheit of Oppenheimer & Co. Inc. has reviewed both the official Arabic version of the draft law and the unofficial English translation and says they are ambiguous and seem to be written in haste.
"The law did not strike me as something that was explicitly designed to favor American companies, although I'm not ruling that out," he says.
But the stipulation that a new Federal Oil and Gas Council must include foreign participation did "raise a red flag," he says. Under the draft law, the council would carry out Iraqi oil policies and set criteria for foreign companies working in the industry.
"Why shouldn't Iraq use Iraqi nationals to decide how the contracts will be awarded? They have oil engineers. Use the best brains in the country and, hopefully. they will do what is in the best interest of the country," he says. "Otherwise, there's an impression that American companies are telling Iraqis what to do."
Foreign investment needed in Iraq
With the world's second-largest oil reserves after Saudi Arabia, Iraq is the top prize in the international oil business. Iraq needs new foreign investment to help modernize its oil industry, which has been closed to new technology for the past 25 years, says Mr. Gheit.
But even with a new draft oil law, international oil companies won't be eager to send engineers into a nation in turmoil. "It's very difficult for oil companies to recruit people willing to work in the Iraqi oil fields. It's mayhem," he says.
"If the idea of the law is to expedite getting international oil [firms] to ... set up shop and invest money, they're mistaken," Gheit adds. "I doubt very much that any oil company will be willing to send geologists, engineers to be shot at, kidnapped, or beheaded."
In the 1990s, Saddam Hussein shifted Iraq's oil industry from production-sharing agreements, which gave foreign investors a substantial share in revenues, to service agreements, which limit such investors' profits.
"It's very important, as we said in the [Iraq Study Group] report, that the US not be seen as trying to seek control of that oil," says Lee Hamilton, a cochairman of the Iraq Study Group. "But that will be very difficult to achieve because of the mind-set in much of the region today that we went in because of the oil.... Most of the critics will not be persuaded by any rhetoric of the US but by a law that is drafted and implemented fairly."
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