Middle East Economic Survey
VOL. XLIX
No 13
26-Mar
The New Iraqi Oil Law
By Ghazi Sabir-Ali
The following article was written for MEES by Ghazi Sabir-Ali (in collaboration with Valerie Sabir-Ali). The author is a former chairman and managing director of Iraq’s Northern Oil Company (NOC) in Kirkuk from December 1989 to October 1993, having previously served as Deputy Chairman.(ghazi@sabir-ali.fsnet.co.uk)
Iraq today is an occupied country in a state of chaos with sectarian violence rife, hundreds of people killed and maimed daily, police and security forces infiltrated by militias and warlords’ henchmen. The infrastructure of society is destroyed; hospitals lack equipment and medicines and, indeed, doctors, as so many have fled from the everyday brutality that is Iraqi life today. In order to gain the participation of all groups in the political process it was agreed that the constitution should be amended. This has still not been done. Petrol in an oil rich country is in short supply. And in this maelstrom of unrest and violence the Iraqi government has passed a draft oil law which many Iraqis, experts in economics and the petroleum industry, look on with horror, considering it to be passing over the wealth of Iraq to foreign companies, and thus its ability for present and future generations to rebuild the country. Is it right that in such an atmosphere a law is being enacted which will affect the future livelihood of the Iraqi people for generations to come?
What does the new law entail? The controversial Production Sharing-Agreements (PSAs) have been dropped but it is still proposed to hand over exploration and drilling contracts for decades on terms that could be disproportionately profitable to the contracting companies and unfair to Iraqis. Iraq would be unable to change them for many years to come.
Is this the answer to Iraq’s problems? Since sanctions were introduced in 1990 the oil production industry has become perilously run-down. Equipment and machinery are old and badly maintained due to the ban on importation of spare parts. The extraction of oil from reservoirs has been badly mismanaged. These problems are in urgent need of resolution before any implementation of massive increases in production. A plan to set matters right in the production and processing of oil in order to increase exports from the present 2mn b/d to the pre-First Gulf War level of 3.3mn b/d should be implemented immediately. Only when Iraq has some urgently needed income can the government begin negotiations with foreign companies to take the major step of doubling production to 6mn b/d.
Iraqi Oil Experts
Who can implement the first part of the rehabilitation of Iraq’s oil industry? Iraq has a vast contingent of oil experts skilled in all aspects of the industry: petroleum and reservoir engineers, geologists, drillers etc, as well as engineers and scientists who deal with the overground aspects. These experts ran Iraq’s oil companies with skill and efficiency before the nationalisation of the Iraq Petroleum Company in 1972 – at that time, of 5,000 employees only eight were foreign nationals – up to the present time. I was Deputy Chairman, then Chairman, of the North Oil Company (NOC) from 1980 to 1993 with a workforce of 10,000 and I had the privilege of leading this team of highly capable Iraqis, who came from different backgrounds and different geographical areas. We executed giant projects with – and without – the help of foreign contractors, such as the first underground storage project in Iraq, artificial lifting of oil from depleted wells and the building of several large overground crude oil complexes. After the first Gulf War, we rebuilt a devastated NOC in a short time. In all the cases where foreign companies were employed, NOC was in charge overall.
I cannot emphasise enough the capabilities of NOC’s workforce; and the same applies in the south. In the disciplines of reservoir engineering, geology and crude oil production they are second to none. A great deal of finance will obviously be needed, especially as Iraq’s overseas reserves have already been squandered by mismanagement on the part of the occupying forces. Technical help from foreign contractors will also be required but this should be on the same basis as above with Iraq’s oil industry in control. The contracts negotiated will need to be generous due to the unstable state of the country, but not a free gift of most of Iraq’s oil, and the carrot of huge future contracts can be dangled in front of the foreign companies.
When the situation has stabilized and security prevails, Iraq can then build up production to 6mn b/d, an immense undertaking. To achieve this aim, exploration and drilling on a huge scale must take place, as well as the construction of major industrial complexes. This will entail developing giant and super-giant fields especially in the south. It is here that Iraq will need a great deal of financial and technical help. The sums will be huge but the rewards for both Iraq and the participating foreign companies will be great. In the late 1980s and early 1990s the Iraqi government was looking into the feasibility of PSAs and there is no reason, if they are negotiated in a fair and honest way to both sides, why they cannot be used for these important new developments. However, now is not the time for them; Iraq is an occupied country in desperate straits negotiating from a position of weakness. It has been acknowledged that the new draft oil law has had input from various non-Iraqi sources.
Development In Stages
So any development of Iraq’s oil industry should be undertaken in stages, first rebuilding and maintenance in the next few years in order to increase oil production to the pre-1990 level of 3.3mn b/d; once this has been established an increase to 6mn b/d and, eventually in the long term, to the level of Saudi Arabia’s production of 10mn b/d can be carried out. At all times Iraq should be in charge of its oil industry and not in any way pass control to foreign companies.
Let Iraqis rebuild and develop their oil industry themselves. It will be a transgression of major proportions against the Iraqi people if foreign companies control Iraq’s oil, whether through PSAs or any other form of agreement. Iraq must be in charge of an industry which is the country’s only real source of the income it so desperately needs to rebuild the infrastructure and lift the population out of the poverty into which three wars and foreign occupation have driven it. The knowledge and skill are available. Some of the foreign oil companies are like pigs, voraciously gathering around the food trough. They must not be allowed to leave only the dregs for the Iraqi people.