Academic journal article Middle East Review of International Affairs (Online)

Assessing Iraq's Oil Industry

Academic journal article Middle East Review of International Affairs (Online)

Assessing Iraq's Oil Industry

Article excerpt


Contributing 60 percent of GDP, 99 percent of exports, and over 90 percent of government revenue, the oil industry is by far the most vital sector of the Iraqi economy, with proven petroleum reserves of 143 billion barrels and a potential to recover and refine a further 200 billion barrels.1 The existence of substantial oil reserves in the area of Mesopotamia has been known since at least the end of the nineteenth century, with the monopoly of oil exploration and production originally lying in the hands of the Iraq Petroleum Company (IPC), which was owned by a consortium of foreign oil companies until the Ba'th government completely nationalized the IPC in 1972. It should be emphasized that since that time, the oil industry has remained a state-run enterprise in Iraq.

In the run-up to and in the aftermath of the U.S. invasion in March 2003, a common theory among critics of the war has been that the coalition forces invaded the country to take over its oil reserves. This speculation was fuelled in 2011 by a report in the Independent on UK government memos that had been obtained through a Freedom of Information request. According to this report, in October 2002, the petroleum firms BP, Shell, and BG had a meeting with Baroness Symons, who was Trade Minister in the British government at the time, and agreed to lobby the Bush administration on BP's behalf.2

BP officials also met with the Foreign Office the following month, discussing opportunities in Iraq "post regime change."3 The meeting was summarized as follows: "Iraq is the big oil prospect. BP is desperate to get in there and anxious that political deals should not deny them the opportunity."4 BP's concern in particular was that Washington would not annul the contract that the French company Total had signed with Saddam Hussein's regime, thereby allowing Total to become, in BP's view, the world's largest oil company.5

However, what those memos revealed was merely a self-evident truth: that foreign oil companies would naturally take an interest in developing Iraq's oil reserves. The idea of privatizing the oil industry was entertained among some quarters of the Bush administration, but this policy proposal was certainly not a consensus among government officials. In fact, it never became a matter of U.S. policy, even during the period of governance under the Coalition Provisional Authority (CPA), which lasted until June 2004. This was because the CPA under Paul Bremer justifiably feared that privatizing the oil industry would provoke resentment among the Iraqi population.

Furthermore, at an OPEC meeting on March 31, 2004, it was decided that global oil prices should be kept high by a 4 percent reduction in petroleum production. This equated to approximately one million barrels per day. As Daniel Pipes noted, "Not surprisingly, this Saudi-led step met with disapproval in Washington,"6 but then Iraqi oil minister Ibrahim Bahr al-Ulum, who was representing occupied Iraq at the Viennabased meeting, came out in favor of the OPEC initiative.7

It was not until August 2008 that the first oil deal was signed between the Iraqi government and a foreign company, in this case the China National Petroleum Corporation (CNPC), which is run by the Chinese government. As Joel Wing points out, this agreement was a reworking of a 1997 contract that Saddam had signed with the corporation and is to be classed as a "Technical Services Agreement," which entails a fixed payment to the corporation in addition to a set fee per barrel for every extra barrel of oil produced.8 For this particular agreement, the fixed payment was $3 billion, and $3 per extra barrel.9 These terms were intended to work to the government's advantage, and the fuel produced from the Ahdab oil field in Wasit province as part of this deal cannot be sold by the company, but must be used exclusively for domestic purposes.10

Yet there was an angry response in May 2009 from local farmers in Wasit, fearing that the government would confiscate their agricultural lands. …

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