Some forty years after being kicked out of Iraq by Saddam Hussein, four Western oil giants are plotting their return :
More from the IHT :
By the end of the month, Royal Dutch Shell, BP, Exxon Mobil and Total will sign agreements with the Baghdad government, Iraq's first with big Western oil firms since the US-led invasion in 2003.
The deals are for repair and technical support in some of the country's largest oilfields, the Oil Ministry in Baghdad said yesterday. The return of "Big Oil" will add to the suspicions of those in the Middle East who claimed that the overthrow of Saddam was secretly driven by the West's desire to gain control of Iraq's oil. It will also be greeted with dismay by many Iraqis who fear losing control of their vast oil reserves.
Iraq's reserves are believed to be second only to Saudi Arabia in the Middle East, but their exploitation has long been hampered by UN sanctions, imposed on Iraq after Saddam Hussein invaded Kuwait in 1990.
The major oil companies have been eager to go back to Iraq, but are concerned about their own security and the long-term stability of the country. The two-year no-bid agreements are service agreements that should add another 500,000 barrels of crude a day of output to Iraq's present production of 2.5 million barrels a day (b/d).
The companies have the option of being paid in cash or crude oil for the deals, each of which will reportedly be worth $500m (£250m). For Iraq, the agreements are a way of accessing foreign expertise immediately, before the Iraqi parliament passes a controversial new hydrocarbons law.
But they mean that the four oil companies, which originally formed the Iraq Petroleum Company to exploit Iraqi oil from the 1920s until the industry's nationalisation in 1972, will be well-placed to bid for contracts for the long-term development of these fields. The oilfields affected are some of the largest in Iraq, from Kirkuk in the north to Rumaila, on the border with Kuwait. Although there is oil in northern Iraq, most of the reserves are close to Basra, in the far south.
Since the US invasion, Iraqis have been wary of foreign involvement in their oil industry. Many are convinced that the hidden purpose of the US invasion was to take over Iraqi oil, but the Iraqi Oil Minister, Hussein Shahristani, has said that Iraq will hold on to its natural resources. "If Iraq needs help from international oil companies, they will be invited to co-operate with the Iraqi National Oil Company [Inoc], on terms and conditions acceptable to Iraq, to generate the highest revenue for Iraq".
For the four oil giants, the new agreements will bring them back to a country where they have a long history. BP, Exxon Mobil, Total and Shell were co-owners of a British, American and French consortium that kept Iraq's oil reserves in foreign control for more than 40 years.
The Iraq Petroleum Company (once the Turkish Petroleum Company) was formed in 1912 by oil companies eager to grab the resources in parts of the Ottoman Empire.
The company was formalised in 1928 and each of the four shareholders had a 23.75 per cent share of all the oil produced. The final 5 per cent went to Calouste Gulbenkian, an Armenian businessman.
In 1931, an agreement was signed with Iraq, giving the company complete control over the oi fields of Mosul in return for annual royalties. After Saddam's coup in 1958, nationalisation came in 1972.
The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India. The contracts, which would run for one to two years and are relatively small by industry standards, would nonetheless give the companies an advantage in bidding on future contracts in a country that many experts consider to be the best hope for a large-scale increase in oil production.
There was suspicion among many in the Arab world and among parts of the American public that the United States had gone to war in Iraq precisely to secure the oil wealth these contracts seek to extract. The Bush administration has said that the war was necessary to combat terrorism. It is not clear what role the United States played in awarding the contracts; there are still American advisers to Iraq's Oil Ministry.
Sensitive to the appearance that they were profiting from the war and already under pressure because of record high oil prices, senior officials of two of the companies, speaking only on the condition that they not be identified, said they were helping Iraq rebuild its decrepit oil industry.
For an industry being frozen out of new ventures in the world's dominant oil-producing countries, from Russia to Venezuela, Iraq offers a rare and prized opportunity.
While enriched by $140 per barrel oil, the oil majors are also struggling to replace their reserves as ever more of the world's oil patch becomes off limits. Governments in countries like Bolivia and Venezuela are nationalizing their oil industries or seeking a larger share of the record profits for their national budgets. Russia and Kazakhstan have forced the major companies to renegotiate contracts.
The Iraqi government's stated goal in inviting back the major companies is to increase oil production by half a million barrels per day by attracting modern technology and expertise to oil fields now desperately short of both. The revenue would be used for reconstruction, although the Iraqi government has had trouble spending the oil revenues it now has, in part because of bureaucratic inefficiency.
For the American government, increasing output in Iraq, as elsewhere, serves the foreign policy goal of increasing oil production globally to alleviate the exceptionally tight supply that is a cause of soaring prices.
The first oil contracts for the majors in Iraq are exceptional for the oil industry.
They include a provision that could allow the companies to reap large profits at today's prices: the ministry and companies are negotiating payment in oil rather than cash.