Iraq Is at the Heart of the Black Gold Strategy of the "Majors"

Here's an article from Le Monde on that motivating factor never mentioned in the articles on UN diplomacy, oil:
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Translated from Le Monde (Paris), Oct. 31:

IRAQ IS AT THE HEART OF THE BLACK GOLD STRATEGY OF THE "MAJORS" -- The big international companies are looking for new fields to cover the expected increase in demand in every country. Baghdad, which ranks second in the world reserves, far behind Saudi Arabia, is coveted by all.

LONDON, from our correspondent

Always think about it, never talk about it: this is the motto of the big petroleum groups with respect to Iraqi oil, which is exciting the lust of the majors in the US and elsewhere.

PSA (production sharing agreement) : in oil jargon, this acronym is the open sesame that increases the price of oil stocks. An agreement to share production between a country and a company allows the latter to count the reserves it controls as assets in its financial reporting. Accounting practices consider these rights to prospecting and drilling as tangible assets. It goes without saying that such an increase in the exploitation account attracts investors. And the other type of contract, for services, being less profitable, does not have the same positive effect on stock prices. Countries which refuse to share sovereignty over their energy wealth, like Iran and Kuwait, for example, refuse to grant PSAs. On the other hand, exploration-exploitation agreements recently signed by Saddam Hussein with certain companies (including TotalFinaElf) are PSAs. The breakdown of the petroleum infrastructure and the sanctions regime have, it is true, greatly limited Iraqi leaders' margin of maneuver in negotiations.

In Washington as in London, the officials of the Iraqi National Congress, a federation of domestic opposition movements in exile, are discreetly courted. ExxonMobil and ChevronTexaco cuddle up to Ahmed Chalabi, one of the principal opponents of the Baghdad regime, who is particularly close to the American vice president, Dick Cheney.

POST-SADDAM HUSSEIN

The British, too, intend to take up this challenge. Royal Dutch/Shell has reactivated its networks, woven during its abortive charm offensive toward Baghdad in 1998. Kicked out of Iraq in the 1960s, BP has updated its old geological charts. BP general director John Browne could not have been more explicit on Tuesday about the post-Saddam Hussein era, saying: "We would like to be sure that we will all be on an equal footing and that there will be not be pre- arrangements." This intensive lobbying corresponds to the high stakes.

Interviewed by Le Monde, a INC spokesperson insisted on the fact that in the event of the dictator's overthrow the new team will maintain the principle of the production sharing agreements. Faced with a stock market decline, oil stocks are attractive because of their solidity and the strength of the price per barrel. So it is not surprising that financial circles are closely following the inevitable reshuffling of the deck of Iraqi petroleum cards in the event of a conflict. "For publicly listed companies, growth prospects definitely make the difference. At present, there is no oil region more promising than Iraq and its 112 billion barrels of proven reserves. World production is stagnating due to a lack of significant discoveries": as this City specialist indicates, all the majors are looking for new fields to cover the expected increase in world demand.

The interest in the Iraqi manna is also a part of a concern about geographic diversification. ExxonMobil and Chevron Texaco remain too centered on the American continent. BP is very much present in every zone (Gulf of Mexico, North Sea, Alaska) where climatic conditions and the depth of the fields require significant investments. For its part, Royal Dutch/Shell is penalized by the size of its holdings on the African continent (Nigeria, Angola), considered unstable. In addition, the high return on exploration-exploitation, superior by far to downstream activities, encourages the oil barons. Refining is suffering from overcapacities. Gasoline at the pump is suffering from supermarket competition. Petrochemicals are undermined by the industrial slowdown.

One last trump favoring Iraqi oil: an exploitation cost less than half of that for deep-sea wells. Despite agreed-to efforts by the majors to reduce their general expenses (massive layoffs, financial restructuring), these remain too high, according to analysts.

There remains one great unknown: will a new stable pro-western government in Baghdad honor the large contracts signed with a dozen non-American companies? These licenses are not yet operational because of the sanctions against Baghdad. There is no doubt that if Saddam Hussein were overthrown these agreements would be revised in favor of the American groups. But French, Russian, and Chinese oil producers will not hesitate to vigorously oppose such an upheaval. In the end, the needs of the Iraqi productive apparatus are enormous. This titanic worksite certainly requires not only means, but also time. These considerations make one black gold trader based in Geneva say: "To become a world player, the Iraqi industry needs all the big companies, not just the Americans. Chances are that we're heading toward a compromise."

Marc Roche
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Translated by Mark K. Jensen
Associate Professor of French
Chair, Department of Languages and Literatures
Pacific Lutheran University
Tacoma, WA 98447

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Last updated: November 1, 2002