Oil companies waiting to pounce in Iraq

By ANDREW BUNCOMBE

WASHINGTON - Oil companies around the world are manoeuvring themselves for the multibillion-dollar bonanza that would follow the ousting of Saddam Hussein.

Russia is so concerned that it has been holding secret talks with the Iraqi Opposition to shore up its economic interests in the country, which still owes Moscow US$7 billion ($15 billion) from Soviet times.

With the second-biggest proven oil reserves of any country, Iraq's underdeveloped oil fields have become a key negotiating chip and a backdrop to continuing talks between the United States and the other permanent members of the United Nations Security Council, all of which have major economic stakes in regime change in Iraq.

It has also given fuel to critics of the United States' war plans, who say the desire to topple Saddam is at least partly driven by economics.

Oil industry experts say there is growing concern that the United States would dominate the Iraqi oil scene post-Saddam.

As a result, a number of oil companies have reportedly held talks with members of the Iraqi Opposition to try to ensure involvement in any future deals.

The Independent has learned the concern is such that the Russian Government - which is still friendly towards Iraq - recently dispatched a diplomat to hold talks with a senior official from the Iraqi National Congress (INC), the US-backed Iraq Opposition umbrella group.

At that meeting in Washington on August 29 - the first for seven years - the Russian diplomat expressed worries that his country would be kept out of the oil markets by the US.

James Woolsey, a former director of the CIA and a regular commentator on the relationship between oil and global security, told the Washington Post: "It's pretty straightforward. France and Russia have oil companies and interests in Iraq.

"They should be told that if they are of assistance in moving Iraq toward decent government we'll do the best we can to ensure that the new Government and American companies work closely with them.

"If they throw in their lot with Saddam it will be difficult to the point of impossible to persuade the new Iraqi Government to work with them."

Iraq has oil reserves of 112 billion barrels, second only to Saudi Arabia, with perhaps double that in undiscovered reserves.

With sanctions in place, the current production is just 2.8 million barrels a day, a capacity it struggles to reach because of deteriorating equipment. Under the UN oil-for-food programme, it exports about a million barrels a day.

Since 1998, two subsidiaries of Houston-based Halliburton, the company previously headed by US Vice-President Dick Cheney, have done $24 million worth of business to repair Iraqi oil pipelines under the UN programme.

Experts say that given sufficient foreign investment, Iraq could be producing six million barrels a day within five years, making it the world's third-biggest producer behind Russia and Saudi Arabia.

But which companies will benefit from these rich pickings? Since the end of the Gulf War companies from more than a dozen nations, including Britain, have had discussions with Iraq about developing fields.

In 1997, Russia's Lukoil negotiated a $8.5 billion deal to develop the West Qurna oilfield, and last year another Russian company, Slavneft, signed a $42 million deal to drill in Tuba. The French Total Fina Elf company has negotiated the rights for the vast Majnoon oilfield near the Iranian border.

It is unclear whether such deals would be honoured by a post-Saddam Government.

INC official Faisal Qaragholi said all such deals would be reviewed.

"If the deal [helps] the Iraqi people it will be carried on. If it does not it will be renegotiated," he said.

INC chairman Ahmed Chalabi believes the US should head a consortium to develop Iraq's oil.

Such views horrify the Russian Government, which as a major exporter of oil has much to lose should the US assume a dominant position in Iraq's oil industry.

Thane Gustafson, senior director with consultants Cambridge Energy Associates, said the issue was almost certainly a factor in Russia's ongoing talks with the US about a new UN resolution over weapons inspectors.

"Oil is bound to be on [President Vladimir] Putin's mind because of the importance of oil exports ...

"He would probably prefer things pretty much as they are now."

Russia's concern led it to dispatch diplomat Andrew Kroshkin to hold talks with the INC's Washington director, Entifadh Qanbar.

Qanbar said that during the meeting Kroshkin said Russia's Iraq policy was "100 per made by money".

"He told me that he had been told that if the Americans overthrow Iraq they will not let the Russians do business in Iraq," he said.

"We have seen this in the Balkans. He wanted to say that Russia's dealings with Iraq are based on historical and economic relations, not on relations with Saddam."

The importance of Iraqi oil will also be discussed next week at a US-Russian energy summit in Houston.

In this environment, it is likely that most leading oil companies are actively trying to position themselves to operate in Iraq if Saddam is overthrown.

US oil giants ExxonMobil and ChevronTexaco both refused to say if they had been holding talks with the Iraqi Opposition. But both said they would be interested in operating in Iraq if sanctions permitted them.

A spokesman for Royal Dutch Shell, the British-Dutch company that held discussions with Saddam about developing the Ratawi oilfield several years ago, said it had not approached the INC but that if sanctions were lifted the company would be interested in dealing with Iraq.

James Lucier, an oil analyst with Prudential Securities, said: "There's no real upside for American oil companies to take a very aggressive stance at this stage.

"There'll be plenty of time in the future."

Further reading
Feature: War with Iraq

Iraq links and resources