22 April 2003
Intriguing power plays erupting in postwar Iraq underline the conundrum faced by Opec when it meets later this week to plot out a production strategy that ministers hope will stave off a price collapse before the group has to make room for Iraqi oil exports.
But further delays to the establishment of an interim Iraqi administration to oversee the short-term rehabilitation of the country’s oil sector could delay the resumption of exports and buy Opec some time to get its own house in order by tightening up leaky taps.
The power vacuum left after the overthrow of Iraqi President Saddam Hussein has sparked an intense grasp for the leadership from Iraq’s diverse ethnic and religious groups, set off one more tussle in Washington between the Pentagon and State Department on who calls the shots, and put the US and United Nations on another collision course.
The emergence of the Iraqi National Congress (INC), headed by controversial former banker Ahmed Chalabi, a darling of Donald Rumsfeld’s Department of Defense, as the first group to attempt to take the reins after Saddam’s departure has further stoked the anger of ordinary Iraqis who see Chalabi and other Iraqi exiles as puppets of the US government, eager to grab leadership positions before anyone else can.
Though Chalabi has been quick to dismiss suggestions that he would assume a leadership role in a postwar Iraq, INC-backed forces, armed by the Pentagon, have been policing the capital’s streets. And an INC official who is serving as the head of a self-appointed interim executive council in Baghdad promptly announced on Sunday that his deputy would lead Iraq’s delegation to Opec’s emergency meeting in Vienna on Thursday, accompanied by two other Iraqi oil ministry officials.
But US officials empowered with reconstruction efforts in Iraq said they did not recognize the council or its leader, Mohammad al-Zubaidi, and said that his deputy, Jawdat al-Obeidi, did not have the right to represent Iraq at Opec.
Opec officials told Energy Intelligence that they had not received a formal request from anyone to represent Iraq at this week’s talks, and said that it was unlikely that al-Obeidi would be permitted to attend the meeting. “We cannot simply open the door to anyone purporting to speak on behalf of the Iraqi people,” an Opec official said. “This unusual situation does not make life easy for us.”
In an interview with Energy Intelligence at the Baghdad hotel where he set up his temporary office, al-Obeidi, a retired army general, said he was keen to “give Iraq a representation on the Opec scene to bring it back as soon as possible to its previous status. We will not be making any decisions but our presence there is important by itself.”
An official accompanying Jay Garner, the retired US general appointed by Washington to serve as Iraq’s interim administrator, said that the US does not recognize the executive council or al-Zubaidi because there was no process of selection.
Defense Secretary Rumsfeld sidestepped the issue of the mayor’s democratic credentials on Monday, saying he was “not surprised” al-Zubaidi had come forward. “People are entrepreneurial. People will make announcements and on the ground it will get sorted out … there are a number of groups who will try to assert influence there.”
But State Department spokesman Richard Boucher commented that, “Until the Iraqis have the ability to decide their representation, maybe they won’t be there [in Vienna].”
Al-Obeidi said he was to be accompanied to Vienna by Mazen Jumaa, deputy oil minister under Saddam’s Oil Minister Amer Rashid, and Shamkhi Faraj, head of the economic studies department at the ministry and an Opec veteran.
Al-Obeidi told oil ministry officials his efforts had been coordinated with US army officials in Baghdad who were expected to facilitate travel arrangements through Jordan. Since the launch of the US war on Iraq last month, Amman has banned Iraqis from entering Jordan.
On Sunday, al-Zubaidi announced the establishment of 22 committees to replicate ministries or government bodies that existed under the old regime. Each committee will elect a representative to an executive council that he said would be dismantled after Iraq holds elections.
Jumaa is to represent the oil committee, though his experience in the oil sector is limited to his brief tenure as deputy oil minister. According to al-Zubaidi, five other members sit on the oil ministry committee including the executive director of the State Oil Marketing Organization (Somo), the director general of the planning department at the ministry Thamer al-Ghadban, and Faraj.
“The main purpose of the executive council is to fill in the void in the authority that exists until the people can elect their representatives once a constitution and electoral laws are drawn up”, al-Zubaidi told Energy Intelligence Monday.
Al-Zubaidi, 47, has lived in exile since he was 23. In the interview, he said the council is a sort of “interim government,” which has the same authority as a government but which reports to Baghdad-based US forces. He also said oil exports should resume as soon as possible: “We are ready to start exports any time. The problem that is holding us is technical not legal.” According to al-Zubaidi, once a law regulating the authority of the council is drafted, his council would act as the legal body selling Iraqi oil on world markets.
However, following the controversy over Iraqi representation at Opec, observers say it is doubtful whether his council would be in charge of vital issues such as crude exports.
US officials have other ideas for Iraq’s oil industry, government sources say. The Bush administration has been busy canvassing opinions of oil industry experts on a number of Iraqi oil specialists, both exiles and those who remained in Iraq, to serve on a board of Iraqis and Westerners to get the oil sector on its feet and resume exports as soon as possible.
Though a number of names have been bandied about, the only confirmed members of the board are former Shell Oil Chief Executive Philip Carroll and Iraqi exile Muhammad-Ali Zainy, a one-time senior Iraqi oil ministry official who defected more than 20 years ago and has since worked in the US and UK as an oil consultant.
The decisive victory of US-led forces and the fact that US military leaders are now effectively running Iraq prompt some to ask whether the US will sit at oil’s top table in Vienna. Opec sources say that Iraq will probably not be represented unless US officials and Iraqis hammer out the composition of an interim government before then.
While some critics already label the US government Opec’s 12th member, because of its sometimes heavy-handed attempts to convince members to produce more oil and cap prices, that doesn’t mean that an Iraqi government receiving its orders from Washington would be welcome at Opec negotiations.
Any Iraqi government will no doubt ask Opec to be exempt from quotas for some time. The other members will have a hard time denying the request until production reaches 1990 capacity of 3.5 million b/d, which some expect could take around two years.
“Iraq will do what it has to do to hit 3.5 million b/d, and there is not really anything the rest of Opec can say about it,” says Leo Drollas, chief economist at the Centre for Global Energy Studies in London. The question is “what Opec will do when Iraq starts to ask for parity with Iran or for higher quotas when the problems will arise.”
Before the invasion of Kuwait, Iraq and Iran were assigned identical quotas of 3.14 million barrels per day. Iran’s current quota is 3.59 million b/d, while Iraq has been producing anywhere from a few hundred thousand to 2.5 million b/d over the past year.
Some Opec ministers have expressed concern that Iraq will eventually leave the group. But the country’s history and geography will make it hard for Baghdad to turn its back on a group that it helped found. “It is in Iraq’s best interest to remain in Opec,” a Saudi official says. “It will be harder hit than some of the rest of Opec when prices fall” — mainly because of its big reconstruction and war reparation bills.
And as much as some in the West might welcome Iraq’s exit from Opec and a push toward privatization, the Bush administration recognizes Opec’s recent role in maintaining a stable oil price. “Opec has served the US very well all these months,” a US government official says.
Saddam’s departure and Iraq’s reintegration could strengthen Opec in the long run. The Iraqi leader was at times a bigger influence on oil prices than all the quota-practicing Opec members together, generally contributing to the kind of price volatility that is criticized by producers and consumers alike.
Iraq’s self-imposed exile from Opec production policy making since the 1990 invasion of Kuwait has sealed Saudi Arabia’s role as Opec’s overwhelmingly dominant force. That domination is likely to be challenged over the next decade if Iraq raises the minimum $20 billion that estimates suggest it would need to take production capacity to 6 million b/d. “Iraq could certainly provide a counterbalance to Saudi Arabia, but that is sometime down the road,” an Opec official says.
By Ruba Husari, Baghdad
(Published in International Oil Daily April 22, 2003)