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Biden hustles terms on Iraq oil contracts

Sept. 18, 2009 at 3:11 PM   |   Comments

BAGHDAD, Sept. 18 (UPI) -- U.S. Vice President Joe Biden's visit to Baghdad earlier this week -- his third this year -- came hot on the heels of a lightning visit by Russia's energy minister as the scramble for Iraq's oil riches heats up.

Just as Sergei Shmatko sought favorable terms for Russian companies in an upcoming oil contract auction, Biden was hustling on behalf of the U.S. oil giants who have long dreamed of getting their hands on what may be the largest untapped oil reserves in the world.

Biden urged Prime Minister Nouri al-Maliki to resist the temptation to demand hefty payments from the international oil companies as the price for doing business with the new Iraq when a new auction of contracts is held in Baghdad in December.

The first auction in June fizzled when only one consortium -- BP and China National Petroleum Co. -- made a deal by accepting Baghdad's offer of only $2 for every barrel of oil it produced. Nine other licenses were rebuffed by major oil companies.

Like every other bidder in that auction, BP and CNPC had wanted $4 per barrel. The others refused to budge from their bids.

Iraqi officials have said Baghdad has lowered its demands for the December auction. But it is not known what figure they will go with when they put up 10 projects covering more than a dozen fields for development.

There is speculation that this time around the oil companies will demand higher fees to compensate for the worsening security situation, a crisis that is likely to worsen as U.S. forces continue their withdrawal.

Still, Oil Minister Hussain Shahristani remains optimistic. "We expect a better match between our expectations and what the companies will bid in the second round," he said this month.

Biden stressed that the Iraqis must make their terms more attractive to foreign investors if they are to amass the $50 billion they say they need to upgrade their long-neglected energy industry and boost production to provide the revenue required for reconstruction.

A senior official with Biden calculated that a deal on a single oil field could reap $50 billion to $60 billion in outside investments, produce $600 million a year in revenue and create as many as 200,000 jobs if Baghdad lowered its demands at the December auction.

Another major problem is the government's failure to produce an oil law that would regulate foreign participation in Iraq's oil industry.

It languishes in Parliament, paralyzed by sectarian rivalries, particularly between the Kurds, who claim the northern Kirkuk oil fields, and Iraq's Shiite-dominated Arabs.

In the absence of a parliamentary ruling, the Oil Ministry has decreed that a Cabinet decision will be sufficient to legitimize foreign participation stemming from the auctions.

But the oil companies remain extremely wary of investing vast sums of money in those circumstances.

Biden apparently went out of his way in meetings with Maliki and half a dozen other top officials during his three-day visit to emphasize that the critical hydrocarbon law must be passed at the earliest possible date if Iraq is to determine its economic future.

But there was no sign that an agreement on this was in the cards any time soon to ward off the possible fragmentation of the country into Shiite, Sunni and Kurdish zones.

Maliki is increasingly beleaguered and seems powerless to find a solution to the problem.

He is currently fighting for his political survival amid a deteriorating security crisis triggered in part by the U.S. troop withdrawal and being abandoned by his Shiite political allies who will challenge him in the January polling.

Before he left, Biden conceded that "a number of problems, whether it is the oil law or some of the disputed internal boundaries, are going to have to wait for final resolution until after the election."

His visit ended on that note of uncertainty, with the senior American official commenting, seemingly with more hope than expectation, "Ultimately, in our judgment, it's in the interest of every Iraqi to accept a smaller piece of a much bigger pie."

Topics: Joe Biden
© 2009 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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