The Observer: Britain led rush for black gold in Iraq

The Foreign Office took pains to help UK oil giants influence Iraq’s laws, writes Heather Stewart

Sunday March 4, 2007

Iraq’s huge oil reserves sparked a rush for black gold among foreign powers almost as soon as they were discovered a century ago. Today, nearly four years after the tanks rolled into Baghdad, the question of who should control Iraq’s resources is at the heart of efforts to stabilise the country.

Oil production is running at about 2m barrels per day – lower than under the strict oil-for-food regime before 2003. Britain has greeted the country’s new oil law, agreed by the Iraqi cabinet after furious debate, as a step toward unifying Iraq and kick-starting its economy. But the law’s references to long-term contracts of close to 40 years with oil companies have provoked anger among campaigners and Iraqi trade unions, who argue it will effectively hand control of the country’s oil to powerful multinationals.

Investigations carried out for People and Power, a documentary to be aired this week on the al-Jazeera English channel, have uncovered the extent of Britain’s involvement in ensuring the oil giants’ interests have been represented to the Iraqi government at the highest level throughout the last four years.

Within months of the invasion a Washington-based lobby group called the International Tax and Investment Centre (Itic), which campaigns for business-friendly legislation, gathered financial contributions from oil companies including BP and Shell for a special ‘Iraq project’. In autumn 2004 it delivered a report, Petroleum and Iraq’s Future: Fiscal Options and Challenges. It concluded that Iraq needed ‘aggressive’ expansion of oil output, mostly driven by foreign investment and using ‘production sharing agreements’ giving oil companies exclusive rights to exploit a field in exchange for a share of the profit.

Itic claims that the British ambassador in Baghdad formally handed over its report to the Iraqi finance minister – and that embassy staff helped to identify key Iraqi ministers, who were invited by Itic to a Beirut conference with the oil companies in January 2005. The Foreign Office also had a draft ‘code of conduct’ for Iraq’s oil industry drawn up by a consultant who previously worked for BP.

Whitehall officials describe their role in the drafting of the oil law as a ‘watching brief’, and claim Itic is ’embroidering’ the embassy’s involvement, but al-Jazeera’s investigations suggest the government has been far more engaged, even commenting on successive drafts.

Iraq’s oil industry has been squeezed by years of sanctions and conflict: workers have had little training, pipes are rusty. But there is no shortage of cash. The Americans have thrown billions of dollars at the country, and oil has continued to flow. High crude prices have helped boost revenues, and last year the government only spent around a fifth of its investment budget and was left with a large surplus.

Iraq was also given a generous debt relief deal by the Paris Club of creditor countries, under pressure from the US. It still owes about $100bn, mostly to Gulf states – about half to Saudi Arabia. Much of this may yet be written off, depending on how Iraq’s government manages to cement relations with its neighbours.

Without any pressing need for cash, observers are urging Iraq to delay final decisions on how to run its oil industry. With coalition forces still on the ground, and bombs exploding almost every day, there are fears that the country is in a weak bargaining position.

‘Deals negotiated while the institutions of state are new, and weakened by the violence and political divisions in Iraq, are likely to result in unfair terms for the Iraqis – terms which would persist long after the situation improves,’ says Greg Muttit of oil campaign group Platform. Most of Iraq’s resource-rich Gulf neighbours, including Kuwait and Saudi Arabia, have nationalised oil sectors. Much depends on how oil revenue is distributed – left ambiguous in the new law. Iraq’s provinces, such as relatively peaceful Kurdistan, which has already signed some extraction contracts with Norwegian companies, are keen to reap the benefits of what they see as their own resources. Unless these issues can be settled the political pact between Iraq’s regions and its sects risks collapse.

Iraq’s Council of Representatives recently passed its first democratic budget, with revenue forecast at $33bn. Some reconstruction projects are under way. The government has declared 2007 ‘the year of budget execution’, but with the security situation still perilous and little government infrastructure, militias are taking over delivery of local services, and Baghdad may struggle to convince people it is serving their interests.

Britain has spent more than $1bn on reconstruction in Iraq since 2003. There are officials from the UK’s Department for International Development in both Baghdad and Basra. They have helped the regional government in Basra to prepare wish-lists of public reconstruction projects, make bids to Baghdad for resources, and ensure the money gets spent. They hold workshops and training sessions, and help with what they call ‘capacity-building’.

Advising Baghdad on how to attract foreign investment may seem like innocuous ‘nation-building’; but the implementation of the oil law will be critical to securing political stability – and that means the benefits of Iraq’s extraordinary endowment of natural resources will have to filter all the way down to ordinary Iraqis.

http://www.guardian.co.uk/Iraq/Story/0,,2025963,00.html