Ben Lando on Iraq’s Oil Bid Auctions

This piece first aired in July, 2009, as part of the show, “A Rising Threat.”

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    HOST I: This is War News Radio. Oil is one of Iraq’s most important resources – and also its most fought over. The Iraqi constitution left open the question of how oil contracting responsibilities, and revenues, would be shared. The parliament was long ago supposed to resolve the issue – but the fight goes on. Should oil contracts be the Oil Ministry’s responsibility alone, or should parliament have a role? Should the regional governments be allowed to award contracts? And how should the money be shared? In theory, Iraq’s oil deals can still be run, using the law that was in place under Saddam Hussein – but even that has different interpretations. The end result? A headache for foreign oil companies – and a severe blow to Iraq’s budget, which depends heavily on oil returns.

    HOST II: This week, Iraq’s oil ministry held auctions for contracts to invest in eight of the country’s biggest oil and natural gas fields. If foreign oil companies had jumped for the chance – as expected – they would have injected much needed equipment and expertise to boost Iraq’s oil production. But only one of the fields was successfully contracted. As for the others, either there were no bids or the government and the oil companies couldn’t agree on a price. Emily Hager spoke with Ben Lando, editor of the Iraq Oil Report, to find out what all this means.

    EMILY HAGER: Is this result kind of a show of strength for the Iraqi government, saying kind of, we don’t have to hit any price that the foreign oil companies want to set, or is this kind of a disaster, because none of the oil contracts were signed?

    BEN LANDO: Well, it really depends on who’s the one looking at it. The opponents of Iraq’s Oil Ministry, the political opponents of Maliki, say, look, this is a, you know, failure of the government. Supporters, and Maliki and the oil minister, Hussein Shahristani himself, are saying, “Look, we offered this up to foreign investment, but we were putting Iraqi sovereignty over its oil sector before anything else. There was a lot of debate over the future of the oil sector that have been pushed down the road. But one deal was signed, and because of that, then this discussion will take place, or at least over this one – one deal. So the issue of whether the government had the right, or whether parliament should have been included, etc, that will have to be addressed for this contract to be finalized.

    EMILY HAGER: How urgent is it for Iraq to have those fields developed?

    BEN LANDO: Especially the fields that were in play for the auction, very important that they get developed. The six oil fields are six of Iraq’s biggest, and they need to be repaired, they need massive investment to increase production. And the two gas fields that were up for bid, you know, Iraq is very undeveloped when it comes to their natural – utilizing their natural gas fields. And so there’s a lot of money to be made and there’s a lot of services to be given to the Iraqis if they were to develop their oil and gas sector. And because they rely on oil revenues, it’s very important that these fields get developed.

    EMILY HAGER: So what – what is the biggest obstacle, do you think, or was at least for these oil bids, for the companies that are trying to invest in Iraq? Is it something in particular about these offers that were on this bid, or is it the security situation itself and the political situation itself, or the argument that took place before the bids even happened, about whether they were going to be legitimate or not – ?

    BEN LANDO: All of the above. I mean, the companies looked at what the potential upside was to signing these contracts, and then what the risk was. So there is the question of whether these contracts are legitimate, what happens if there’s a new government after the election, which is less friendly to foreign oil companies, there’s the security risk, and whether all of that, kind of, unknown, is worth what the government is willing to pay. It differed depending on what oil field it was, and where it was in the country – but all of those were factors in the oil companies not willing to sign deals for the amount that the ministry was willing to pay.

    EMILY HAGER: What situation does the oil minister, al-Shahristani, find himself in? Last week, before this even happened, he was already in hearings in front of Parliament, for maybe not getting enough done in terms of exploring Iraq’s oil fields. What is his situation now?

    BEN LANDO: Well, regardless of what happened during the auction for these oil fields, the oil minister was going to have to deal with the political issues that surround his ministry, the critiques – regardless of whether they signed eight oil and gas fields, or one, or none – he was going to have to deal with it. So they’ll take the criticism – on one side that they shouldn’t have gone forward with this anyway, and the Parliament needs to be included, on the other side that they were failures because they didn’t sign these deals – but the minister, Shahristani, will decide whether to offer different terms to the companies, whether he will start redirecting investment from the ministry into these fields and then do it domestically. You know, these fields are still there, they still need the investment, the politics are still there, they still will alter any decision the minister wants to take – but really, we’re going to see it evolve between now and the next two weeks. We’re really going to see what the future – at least, before the election – what the future of the oil sector looks like in Iraq.

    EMILY HAGER: Thanks so much for talking with me. I really appreciate it.

    BEN LANDO: Thank you very much.

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