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Analysis: Time to withdraw Iraq oil law?

By BEN LANDO, UPI Energy Correspondent   |   Aug. 7, 2007 at 10:38 AM   |   Comments

WASHINGTON, Aug. 7 (UPI) -- Iraq's citizens suffer from the August heat, little electricity and fuel. Death is seemingly around every corner. So the time may not be right for an oil law, especially the one the Bush administration wants.

United Press International has found a recurring theme over recent months during coverage of the Iraq oil law: creating a law governing the bloodline to Iraq's economy should be less of a priority than stopping the bloodletting of Iraq's citizens.

"There is no hurry whatsoever," said Muhammad-Ali Zainy, senior energy economist and analyst at the London-based Center for Global Energy Studies. "Iraq really, now, is bleeding and losing its people in this horrible way and there is terrorism and all that and lack of the provisional basic services.

"Everything bad, there is in Iraq. Why should the government leave all these urgent needs to be addressed and then go to the hydrocarbon law?"

The Bush administration has focused on Iraq's oil since at least 2001. Remodeling the nationalized oil sector has been part of the U.S. occupation's effort to rework Iraq's economy overall. Washington has pushed the oil law because it views it as legislative and economic progress. And President Bush, as well as Congress, included the oil law as a benchmark for Iraq's government, supposedly marking success and reconciliation.

But the law is but one of many factors splitting Iraq's government. Prime Minister Nouri al-Maliki's governing coalition is threatened by defections and internal strife, mostly over its inability to find compromise with Sunnis and halt the increase in violence and downward-spiraling quality of life.

For average citizens, there is little to no regular electricity, and they stand in hours-long lines to buy transportation, heating and cooking fuels in temperatures that average well above 100 degrees in summer. There's a countrywide fuel shortage and, with average unemployment reaching past 60 percent, mass poverty.

Most Iraqis don't have access to potable water, according to the United Nations, thus waterborne illnesses are on the rise in a country with an overburdened hospital system. To put an infrastructure problem in American terms, since 2003 Iraqis have already experienced devastating bridge collapses that eclipse last week's in Minnesota.

And, every day in Iraq, there are a number of Virginia Tech-grade massacres. A third more Iraqi civilians died in July than June, according to the Iraqi government; at least 81 U.S. troops were killed last month -- nearly double July 2006.

"There are certain priorities that one must look at," said former Iraq Oil Minister Issam al-Chalabi, now living in Amman, Jordan. "The situation is so chaotic, people there -- nobody can even walk on the streets. Forget about what you've been told by the press, by the media, by the government, by the United States.

"But we're talking about what the people are seeing with their own eyes in a country that people are afraid to send their children to school, people are afraid to go to work, hundreds of Iraqis are being killed every day.

"What's so important about issuing a law that cannot even be implemented?" Chalabi asked.

He is a leader in a coalition of Iraqi oil, economic and legal experts opposing the current manifestation of the law.

Tariq Shafiq, an Iraqi hired in early 2006 to help write the oil law, now opposes it because he says it weakens the central government. And, he fears, a decentralized oil sector will lead to unnecessary exploration and mismanagement of production to the detriment of Iraq, which last year funded more than 93 percent of the federal budget with oil revenue.

The legislation, having been in negotiations for more than a year, is now stuck in Parliament's Energy Committee. Seventy-six percent of Iraqis 18 years and older say their government has provided either "totally inadequate" or "somewhat inadequate" information on the law, according to a poll of 2,200 Iraqis in all 18 provinces conducted in June and July by KA Research.

Various political, religious and ethnic factions are at odds over how much control the federal government should have over exploration, development and production of the oil versus region/local government control, and the extent foreign companies should be allowed in. This stems from the 2005 constitution, which was written vaguely and is now part of a dispute over amendments.

Any oil law is intended to create clear guidelines for governing the exploration, development and production of Iraq's oil in the long term, the vision for which can't be agreed upon by political powers but which Bush is hounding them for. The lack of a law doesn't restrict investment in the current oil infrastructure, and, with a potential windfall from increased oil sales as a prize, a short-term oil law may be beneficial.

Shafiq, now a consultant based in London and Amman, said investment in Iraq's 115 billion barrels of proven reserves alone could boost Iraq's production beyond the 2 million bpd now.

"It can support a production plateau of 10 million barrels per day. It will take Iraq 15, 20 years to reach that," Shafiq said, warning against pumping oil from the yet to be discovered oil fields, which experts say could double the country's reserves.

Iraq needs new meters to monitor the flow of oil, mismanaged oil fields repaired, a "corroded and battered infrastructure" fixed, and new storage tanks and pipelines, said Zainy of CGES, an oil expert who defected in 1982 after Saddam Hussein killed two of his nephews.

"They can do that. Even if they cannot do that directly they can really hire small companies to do it for them, just service contracts to do it for them. Somehow there is slackness in performance," said Zainy, who was hired by the United States as an oil adviser after the regime fell in 2003. He quit, "disillusioned," four months later.

Iraq has the world's third-largest reserves of oil, but infrastructure is battered after years of misuse by Saddam, was neglected because of U.N. sanctions, and has been ravaged by the 2003 invasion and subsequent fighting. Thamir Ghadhban, Maliki's top energy adviser, said a prewar estimate by oil companies showed the sector needed at least $25 billion.

Chalabi, the former oil minister, and others UPI spoke to said the government's oil sector focus should be corruption and smuggling of oil and oil products, which is taking billions from federal coffers, as well as pumping money into the current infrastructure.

"It's not a question of money, it's a question of what they can do now and how they can do it," Chalabi said. "They have to concentrate on trying to rehabilitate or maintain or upgrade or whatever they can on the existing installations."

A recent U.S. Government Accountability Office report shows about 80 percent of U.S. money for rehabbing the oil sector has been allocated, and production remains nearly a million barrels per day below prewar levels. Iraq, restricted by administrative incapacity, spent less than 3 percent of its $4.5 billion oil reconstruction projects budget last year.

It's unclear whether Baghdad can turn that around, let alone reach a deal on the oil law. If it does, there are still factions outside Parliament with strong positions on it -- especially the powerful oil unions, most of which work in or around Iraq's oil capital, Basra. Nearly all Iraq's oil is sent to market from there. The unions say they're willing to stop production and exports if foreign companies get too much access.

That access, be it with or without the workers' consent, will come at an extra price if deals are signed during the instability. The conditions in the Parliament and the streets are so tenuous and treacherous that any contracts with private companies are likely to include much higher risk premiums than contracts signed when peace finds Iraq.

--

(e-mail: energy@upi.com)

© 2007 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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