It took the Iraqi oil ministry eight months to negotiate technical support contracts (TSCs) with major oil companies for five oil fields before they were cancelled at the last minute in June 2008. Those TSCs could have offered Iraq the first significant foreign help in rehabilitating its producing oil fields in at least three decades. True, they were no-bid contracts but the commitment on the side of the state and the ministry would have been limited to two years while operating Iraq’s most prized fields would have stayed fully in Iraqi hands. The TSCs were scrapped last year due to opposition from a group within the oil ministry and despite the backing the oil minister received from the Iraqi council of ministers. Their successors, the service contracts for six oil producing fields, scheduled to be awarded on June 29 and 30 in open bidding, will tie up Iraq for 20-25 years and are offered under terms that are not ideal for Iraq, especially at a time of budgetary constraints that left the oil ministry cash-strapped. The service contracts are not ideal for the international oil companies either, due to the complex set-up that has been devised in order to enlist their technical help while keeping control of the country’s lifeline in Iraqi hands or at best under joint Iraqi-foreign management. Now, the same group who opposed the TSCs, but this time with backing from lawmakers who are focused on settling political scores with oil minister Hussein al-Shahristani by accusing him, irnonically, of non-action, is calling for the scrapping of Iraq’s first licensing round just two weeks ahead of the award deadline. The service contracts, they argue, are detrimental to Iraq’s national economy and do not safeguard the national interest.
The argument might be valid but the timing of the call is rather questionable. The fact is that the alternative to scrapping the licensing round at this advanced stage of the process is detrimental to Iraq on several fronts: Iraq is in a race with time to reverse the decline in its crude output rate and increase production to compensate for the loss in revenues as a result of the drop in oil prices since their peak last July; having wasted one year on negotiating TSCs that never came to fruition and another on defining and drawing up complex contractual terms for the service contracts, its reputation as a credible and serious partner within the global oil industry is now at stake and could earn it the title of worst host country after Kuwait (except that the latter can afford that reputation); after the transition from the pragmatic TSCs to the stringent service contracts, it would be surprising that a third formula yet to be devised would insure Iraq gets the best technical – and now financial – help it desperately needs on better terms and in a timely manner.
Big Oil – or at least some of those who belong to that category – were willing to pay a price for the opportunity to enter Iraq, but can Iraq afford the price of missing yet another opportunity? There is undoubtedly room for legitimate criticism of the terms under which Iraq’s prolific northern and southern oil fields are being offered in the country’s first bid round to foreign oil companies. But constructive criticism might have come several months late to be effectively taken on board.
Baghdad June 17, 2009