Oil majors stall on Iraq despite U.S. pleas
Those on the right expecting a gusher of investment in Iraq, that will cover US rebuilding costs, will be greatly disappointed. Those on the left believing that the US is out to grab Iraq's oil, think again. It looks more and more like the rational way to proceed is to cede control to the UN, internationalize the security and occupation ASAP, declare victory, and get out well before the 2004 US elections.
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ANALYSIS-Oil majors stall on Iraq despite U.S. pleas
Friday July 11, 7:32 am ET
By Mona Megalli, Middle East Economics Correspondent
BAGHDAD, July 11 (Reuters) - U.S. administrator Paul Bremer may be pushing hard to attract early foreign investment to Iraq, but the oil majors are unlikely to rush in where politicians and lawyers fear to tread.
As he pilots the ravaged but oil-rich country towards democratic elections and an internationally recognised sovereign government, Bremer says Iraq will consider privatisation and foreign oil investment in an attempt to jump-start the economy.
But as he well knows, doubts over whether international law would uphold such moves while Iraq remains under occupation could prove a powerful disincentive to potential investors.
"Everybody knows we cannot wait until there is an elected government here to start economic reform," Bremer told reporters on Monday, laying out his vision of a free-market Iraqi economy, along with caveats over the political hazards.
That may be so, but the oil majors will take some persuading that any funds they pump in now won't be expropriated by an elected government, which despite the best efforts of the United States may not be that well-disposed to western corporations.
"Iraq is not part of our current strategy and we would only do business there if we were dealing with a legitimate Iraqi government," said a spokesman for BP Plc (London:BP.L - News) in London.
TENDER MERCIES
This hasn't prevented BP and its peers from sourcing crude oil from Iraq. Anglo-Dutch Shell (London:SHEL.L - News; Amsterdam:RD.AS - News), ChevronTexaco (NYSE:CVX - News) of the United States and Swiss trading house Taurus were, along with BP, winners in a major tender for Iraqi crude this week.
The U.N. Security Council lifted sanctions on Iraq in May, adopting a resolution that also authorises the occupying powers to disburse oil sales proceeds to meet humanitarian needs, repair infrastructure and fund civilian administration.
Bremer is pinning his hopes for sweeping reform on gaining the backing of a governing council that he is preparing to name to help run Iraq until an elected, fully sovereign government takes over at some undetermined date.
As he acknowledges, the occupying powers could not act alone to access funds by, for example, borrowing money against future Iraqi oil revenues.
"We the coalition would not undertake anything like that without the governing council agreeing, because you are effectively mortgaging the future income that belongs to the Iraqi people," he said.
LEGAL RESERVATIONS
But it is debatable whether such an interim council would have the legal and political credibility to convince investors that a future Iraqi government would feel bound by the deals it struck.
"When it comes to committing the country to new long-term obligations, there must be legal reservations," said Graham Coop, a partner with law firm Denton Wilde Sapte.
"But law and politics interact," he noted, saying the United States and Britain might yet find a way to set up a government in Iraq that will respect their wishes after they leave.
Coop said he would advise oil companies to think long and hard about entering any deal before Iraq's political transition is complete, especially since such investment typically involves a heavy initial outlay with returns over many years.
He added, however, that an interim council would provide a measure of political security that might be enough for oil companies to consider medium-term deals with quicker payoffs.
"Companies may decide that the positive benefits of being on the ground, and having contact with officials who might still be there when a sovereign government takes over, outweigh the lack of complete legal security," Coop said.
The companies are not sitting idly by. Reuters reported as early as April that BP had put a team into place to thrash out its strategy for Iraq.
But perhaps most telling of all, investors in the oil companies themselves are hardly enthusiastic about the idea of taking more substantial exposure.
"I don't see anything in it for them at the moment," said BWD Rensburg fund manager Colin Morton, whose portfolio includes shares in BP and Shell. (Additional reporting by Alistair Lyon and Sudip Kar-Gupta in London) |
