Magazine article The Middle East

The Battle for Iraqi Oil: Oil Is Money, Money Is Power and Power Is Politics, and Nowhere More Than in Beleaguered Iraq. Now, the US Wants the Iraqi Government to Introduce New Legislation-A Hydrocarbons Law-To Restore Stability. but Such Legislation Is More Likely to Further Fracture the Country, Rather Than Usher in Peace, as Ed Blanche Reports

Magazine article The Middle East

The Battle for Iraqi Oil: Oil Is Money, Money Is Power and Power Is Politics, and Nowhere More Than in Beleaguered Iraq. Now, the US Wants the Iraqi Government to Introduce New Legislation-A Hydrocarbons Law-To Restore Stability. but Such Legislation Is More Likely to Further Fracture the Country, Rather Than Usher in Peace, as Ed Blanche Reports

Article excerpt

The political battle over Iraq's landmark draft oil law is arguably the most important issue facing the violence-ravaged country today and one which will determine the shape and the future of the new, post-Saddam Hussein Iraq, for good or ill. The outcome will determine whether the country remains a unified nation state sharing its oil wealth equitably among its people, or splinters into sectarian, and most probably competing, statelets.

The outcome will also determine whether Iraqis will own their country's energy or whether US-led foreign oil giants, which can provide the billions of dollars in investment needed to modernise the badly neglected oil and gas industry, will be allowed to dominate control of the energy sector, Iraq's economic artery.

There is a widely held belief that one of the main objectives of the US invasion in March 2003 was to secure Iraq's oil for the benefit of the US, and opening up the country's oil wealth to western companies is seen as bolstering that perception.

"The specific prize in Iraq is certainly worthy of almost any kind of pre-occupation," according to Michael Schwartz, director of the Undergraduate College of Global Studies at Stony Brook University who has written extensively on the US occupation of Iraq. "Iraq could someday become the most important source of petrochemical energy on the planet."

Iraq has estimated proven reserves of around 115bn barrels, the largest after Saudi Arabia and Iran. But analysts say that there are strong indications that reserves could rise by another 214bn barrels once unexplored fields are added, making Iraq the world's largest single source of crude, and high-quality crude at that.

By comparison, Saudi Arabia has stated reserves of 264bn barrels. Iraq's reserves will become even more crucial over time because Saudi Arabia's reserves are beginning to decline, along with those of other key producing nations.

Iraq has 80 known oilfields, but, according to the experts, only 20 have been developed, and even some of those to only a fraction of their potential. But there is another crucial factor that makes control of Iraqi oil so attractive to the Americans, particularly the neo-conservative hawks, such as the disgraced former World Bank President Paul Wolfowitz, who masterminded the 2003 invasion: extremely low production costs.

According to Schwartz, "Western oil companies estimate they can produce a barrel of Iraqi oil for less than $1.50 and possibly as little as $1 ... This is similar to production costs in Saudi Arabia and lower than virtually any other country." With oil selling at $60-$75 a barrel these days, the profits from Iraqi oil would be immense--providing the bloodletting is brought to an end.

But that's a very big "if".

The Bush administration has pushed hard for the government of Prime Minister Nouri A1 Maliki to approve an oil law in the hope it would ease the sectarian divisions that fuel the violence, by ensuring that the Shi'ites, Sunnis and Kurds would all benefit fairly from the country's oil and gas riches. But the Iraqis remain deeply divided, particularly over how the revenues will be shared and how much power will be allotted to the titans of the global oil industry.

The administration sees the legislation as a critical "benchmark" of the beleaguered coalition government's effort to restore stability in strife-torn Iraq. Indeed, the need to share oil revenues is one of the few things holding the country together.

But the competing powers in Iraq have repeatedly stalled progress, and even though Maliki's government approved a draft in early June, the prospect of it securing approval by parliament remains dim. According to oil economist A.F. Alhaji, the rush to produce the oil law underlines the urgent need for the White House, and Maliki's US-backed coalition, to produce a political success, "even if it's as cosmetic as the new oil law". …

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