The Headache of Black Gold Ownership
April 23, 2003
Russia and France demand that Baghdad's prior commitments be 0ahonored.
From our special envoy in Geneva
The Iraqi regime has fallen, the oil wells are practically intact, and the 0aresumption of exports ought to be technically possible within a few 0amonths. What's left is that George Bush's desire to lift sanctions against 0aBaghdad as quickly as possible runs up against a major obstacle: definition of 0athe legal ownership of Iraq's black gold.
"A buyer with any sense is not going to risk acquiring Iraqi brut as long as 0athe legal identity of the seller has not been clearly defined.
Clients are terrified by the idea that they could procure oil from 0aparties who are not legally the owners. The future government could declare 0athose contracts null and void. We could be forced to pay twice for 0adeliveries. The amounts involved are considerable; the game is not worth 0athe candle": the reservations of this Genevan oil trader accustomed to handling 0aIraqi brut sum up the present expectations of his profession.
Since the outset of the war, major international law firms are advising 0aoil companies and intermediaries to wait until the installation of an interim 0aauthority, of a democratically elected government even, before investing in 0aIraq. Today, there is a complete mess. The only authority in place worthy 0aof the name is the marketing organization for black gold, the State Oil 0aMarketing Organization (SOMO), the expertise of which is universally 0arecognized. Its effectiveness remains handicapped by its close ties with 0athe former regime.
At present, the only legal structure that exists is the "Oil for Food" 0aprogram put in place by the UN in December of 1996 and expiring next June 3. Any 0anew shared production agreement or production and development contract with a 0aforeign investment component is contingent on a lifting of sanctions. On 0athe other hand, repair and drilling contracts escape these restrictions.
At the UN, the struggle promises to be merciless. Those principally affected, 0aRussia, China, and France, permanent Security Council Members with veto rights, 0ahave no intention of clearing out for the Americans and the British. "Those are 0alegally our reserves. If all else fails, we'll go to the Arbitrage Court in 0aGeneva, which will lead to an immediate freeze on those reserves": as the 0apremiere Russian oil producer, Lukoil, specified, Moscow is determined to fight 0ato secure the contracts it signed with the former regime.
With Lukoil at the front of the line, Russian companies concluded 0aseveral contracts with Saddam Hussein's government for the development of Iraq's 0aoil reserves, second in the world after Saudi Arabia's. Should they be deprived 0aof these contracts in post-war Iraq, an appeal to international courts could 0ablock the development of the affected deposits for at least five years.
TotalFinaElf, which signed a protocol of agreement for two of the five giant 0aoil fields in Majnoun and Bin-Umar, demands in a more nuanced way that prior 0aundertakings be honored. As for the Chinese company CNPC, which signed a 0aproduction sharing agreement for the Al-Ahdab field in 1997, it has remained 0avery discrete about its intentions.
Aware of the issue, the Republican Administration would like to hew a new 0alegal framework. The acknowledged objective is to support American companies- 0athe Mastodon ExxonMobil and the Texan and Californian "juniors"- who were shut 0aout of the Iraqi oil sector before the war. The future oil authorities could 0aoffer some kind of legal immunity, protecting companies from lawsuits before the 0acourts. New dispositions could, in addition, interdict the bribes that 0aRussian and Chinese companies readily practice.
The powerful machinery of the Bush administration holds another shock weapon 0ain this grabfest: possession of the geological maps of the Iraqi underground 0asaturated with black gold. In the same vein, the mysterious company, Petro 0aConsultants, based in Perly on the Franco-Swiss border, is in possession of 0amasses of information on this subject. This company, recently purchased by 0aa British Group, is said to be close to the CIA. On top of that, the Marines 0ahave recovered files and archives of the Oil Ministry, the only public building 0ain Baghdad to escape the looters, thanks to their protection.
America would prefer not to share post-war oil benefits. The game is still 0anot over. Development of Iraqi black gold is strewn with ambushes. In light of 0athe investment risks, the legal headache, and stockholder concerns, American 0acompanies will hesitate to go alone in this explosive sector. The general 0aopinion is that existing contracts should not be annulled, but rather opened to 0apartners from the victorious coalition.
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