|In Iraqi War Scenario, Oil Is Key Issue
U.S. Drillers Eye Huge Petroleum Pool
By Dan Morgan and David B. Ottaway
Washington Post Staff Writers
Sunday, September 15, 2002
A U.S.-led ouster of Iraqi President Saddam Hussein could open a bonanza
for American oil companies long banished from Iraq, scuttling oil deals
between Baghdad and Russia, France and other countries, and reshuffling
world petroleum markets, according to industry officials and leaders of the
Although senior Bush administration officials say they have not begun to
focus on the issues involving oil and Iraq, American and foreign oil
companies have already begun maneuvering for a stake in the country's huge
proven reserves of 112 billion barrels of crude oil, the largest in the
world outside Saudi Arabia.
The importance of Iraq's oil has made it potentially one of the
administration's biggest bargaining chips in negotiations to win backing
from the U.N. Security Council and Western allies for President Bush's call
for tough international action against Hussein. All five permanent members
of the Security Council -- the United States, Britain, France, Russia and
China -- have international oil companies with major stakes in a change of
leadership in Baghdad.
"It's pretty straightforward," said former CIA director R. James Woolsey,
who has been one of the leading advocates of forcing Hussein from power.
"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."
But he added: "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
Indeed, the mere prospect of a new Iraqi government has fanned concerns by
non-American oil companies that they will be excluded by the United States,
which almost certainly would be the dominant foreign power in Iraq in the
aftermath of Hussein's fall. Representatives of many foreign oil concerns
have been meeting with leaders of the Iraqi opposition to make their case
for a future stake and to sound them out about their intentions.
Since the Persian Gulf War in 1991, companies from more than a dozen
nations, including France, Russia, China, India, Italy, Vietnam and
Algeria, have either reached or sought to reach agreements in principle to
develop Iraqi oil fields, refurbish existing facilities or explore
undeveloped tracts. Most of the deals are on hold until the lifting of U.N.
But Iraqi opposition officials made clear in interviews last week that they
will not be bound by any of the deals.
"We will review all these agreements, definitely," said Faisal Qaragholi, a
petroleum engineer who directs the London office of the Iraqi National
Congress (INC), an umbrella organization of opposition groups that is
backed by the United States. "Our oil policies should be decided by a
government in Iraq elected by the people."
Ahmed Chalabi, the INC leader, went even further, saying he favored the
creation of a U.S.-led consortium to develop Iraq's oil fields, which have
deteriorated under more than a decade of sanctions. "American companies
will have a big shot at Iraqi oil," Chalabi said.
The INC, however, said it has not taken a formal position on the structure
of Iraq's oil industry in event of a change of leadership.
While the Bush administration's campaign against Hussein is presenting vast
possibilities for multinational oil giants, it poses major risks and
uncertainties for the global oil market, according to industry analysts.
Access to Iraqi oil and profits will depend on the nature and intentions of
a new government. Whether Iraq remains a member of the Organization of
Petroleum Exporting Countries, for example, or seeks an independent role,
free of the OPEC cartel's quotas, will have an impact on oil prices and the
flow of investments to competitors such as Russia, Venezuela and Angola.
While Russian oil companies such as Lukoil have a major financial interest
in developing Iraqi fields, the low prices that could result from a flood
of Iraqi oil into world markets could set back Russian government efforts
to attract foreign investment in its untapped domestic fields. That is
because low world oil prices could make costly ventures to unlock Siberia's
oil treasures far less appealing.
Bush and Vice President Cheney have worked in the oil business and have
long-standing ties to the industry. But despite the buzz about the future
of Iraqi oil among oil companies, the administration, preoccupied with
military planning and making the case about Hussein's potential threat, has
yet to take up the issue in a substantive way, according to U.S. officials.
The Future of Iraq Group, a task force set up at the State Department, does
not have oil on its list of issues, a department spokesman said last week.
An official with the National Security Council declined to say whether oil
had been discussed during consultations on Iraq that Bush has had over the
past several weeks with Russian President Vladimir Putin and Western leaders.
On Friday, a State Department delegation concluded a three-day visit to
Moscow in connection with Iraq. In early October, U.S. and Russian
officials are to hold an energy summit in Houston, at which more than 100
Russian and American energy companies are expected.
Rep. Curt Weldon (R-Pa.) said Bush is keenly aware of Russia's economic
interests in Iraq, stemming from a $7 billion to $8 billion debt that Iraq
ran up with Moscow before the Gulf War. Weldon, who has cultivated close
ties to Putin and Russian parliamentarians, said he believed the Russian
leader will support U.S. action in Iraq if he can get private assurances
from Bush that Russia "will be made whole" financially.
Officials of the Iraqi National Congress said last week that the INC's
Washington director, Entifadh K. Qanbar, met with Russian Embassy officials
here last month and urged Moscow to begin a dialogue with opponents of
But even with such groundwork, the chances of a tidy transition in the oil
sector appear highly problematic. Rival ethnic groups in Iraq's north are
already squabbling over the the giant Kirkuk oil field, which Arabs, Kurds
and minority Turkmen tribesmen are eyeing in the event of Hussein's fall.
Although the volumes have dwindled in recent months, the United States was
importing nearly 1 million barrels of Iraqi oil a day at the start of the
year. Even so, American oil companies have been banished from direct
involvement in Iraq since the late 1980s, when relations soured between
Washington and Baghdad.
Hussein in the 1990s turned to non-American companies to repair fields
damaged in the Gulf War and Iraq's earlier war against Iran, and to tap
undeveloped reserves, but U.S. government studies say the results have been
While Russia's Lukoil negotiated a $4 billion deal in 1997 to develop the
15-billion-barrel West Qurna field in southern Iraq, Lukoil had not
commenced work because of U.N. sanctions. Iraq has threatened to void the
agreement unless work began immediately.
Last October, the Russian oil services company Slavneft reportedly signed a
$52 million service contract to drill at the Tuba field, also in southern
Iraq. A proposed $40 billion Iraqi-Russian economic agreement also
reportedly includes opportunities for Russian companies to explore for oil
in Iraq's western desert.
The French company Total Fina Elf has negotiated for rights to develop the
huge Majnoon field, near the Iranian border, which may contain up to 30
billion barrels of oil. But in July 2001, Iraq announced it would no longer
give French firms priority in the award of such contracts because of its
decision to abide by the sanctions.
Officials of several major firms said they were taking care to avoiding
playing any role in the debate in Washington over how to proceed on Iraq.
"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,"
said James Lucier, an oil analyst with Prudential Securities.
But with the end of sanctions that likely would come with Hussein's ouster,
companies such as ExxonMobil and ChevronTexaco would almost assuredly play
a role, industry officials said. "There's not an oil company out there that
wouldn't be interested in Iraq," one analyst said.