So it was all about oil, after all! News that Western energy companies could be awarded contracts in Iraq has encouraged some commentators, particularly opponents of the invasion, to say the conspiracy theory was right. The Guardian carried a cartoon depicting George W Bush on an aircraft carrier in a jumpsuit covered with oil company logos and a petrol pump in his hand, declaring "contract accomplished". It was a parody of Mr Bush's 2003 appearance on USS Abraham Lincoln against a backdrop announcing "Mission Accomplished".
But you do not have to be a supporter of the war to see that nothing could be further from the truth. The deals under discussion between Iraq's Southern Oil Company and the Western multinationals are the kind of contracts that the multinationals hate. They are service contracts. They last a limited period, involve fixed fees for technical jobs, have no upside if the oil price rises, have no incentive to increase production and do not allow the companies to book the reserves.
Hussain al Shahristani, the oil minister of Iraq, has promised to offer longer-term contracts in June next year, but there is no guarantee that they will be anything other than extended service contracts, nor that they will come on time. What the multinationals want are production-sharing contracts, where companies make the investments in return for a lucrative share of the oil produced. Mr Shahristani has made it fairly clear that he is not about to offer production-sharing contracts now, or at any time in the future, at least on Iraq's largest fields.
Exxon Mobil, Royal Dutch Shell, Total and BP may end up accepting some of the temporary service contracts in the hope of gaining a foothold in the country with the world's third-largest reserves, but the outlook from the companies' perspective is not great. A lot depends on what Iraq decides to put in its oil law, which is currently being negotiated between the factions in parliament. But if Mr Shahristani's comments are anything to go by, oil companies may not get what they are seeking.
Most countries in the region nationalised the companies that produce their oil in the 1970s and 1980s - or severely limited the role of the private sector - precisely because their oil reservoirs were so prolific and easy to exploit. Even after decades of production, the technology required to keep the oil flowing from the Gulf's largest fields can be bought off the shelf. Like any other Gulf producer, Iraq wants the technology and knowhow offered by Western contractors, but will not offer partnership status unless it absolutely has to. Mr Shahristani, and indeed Nuri al-Maliki, the prime minister, are all too aware of the risk of being seen as a lackey of the occupation forces.
In an anomaly, the northern Iraqi enclave of Kurdistan has already signed production-sharing contracts to drill in its territory. The provisional government gave such favourable terms partly because it needed to offer big incentives to compensate for the lack of federal backing. It also had to encourage investors to drill in less prospective areas than the territories to the south. Mr Shahristani has called these contracts illegal. "We think there is no need to share Iraq's oil with anybody," he said.
The recent precedents in other Opec nations do not augur well for the multinationals. In 1997, when oil prices fell below US$20 (Dh73) a barrel, Venezuela bagged $2 billion in signature payments for a handful of service contracts that turned out to be money losers for many of the investors. Then the government changed hands, oil prices rose and Hugo Chavez renationalised the assets. In Iraq companies are hoping that the service contracts they sign in the next few months will give them a foothold to gain a greater level of participation in the future. But the precedents from the Gulf are also not encouraging.
Neighbouring Kuwait began a similar process after the liberation from Iraqi occupation in 1991. Almost two decades later, Western multinationals are still waiting for the projects to go ahead and most have lost interest. In the end, Western interests are served if Iraq pumps more oil, irrespective of who gets it out of the ground. But the prospects of a rapid expansion of Iraq oil output are also fading as the horse-trading in parliament continues. Mr Shahristani has said he aimed to increase output by 80 per cent in five years to 4.5 million barrels a day, but there is little political cost if he fails to hit that target. The oil will stay in the underground bank.
The technical service contracts now being discussed are already months overdue, and there are doubts about whether Iraq can agree on an oil law by June next year, when Mr Shahristani hopes to see some longer-term deals in place. The only certainty is that, with oil prices at $140 a barrel and the global grab for energy at its peak, Iraq will drive a world-class bargain. @Email:tashby@thenational.ae
