Oil a ‘destabilising influence’ on Iraq’s future

Review of Fuel on the fire: oil and politics in occupied Iraq, by Greg Muttitt.

London: The Bodley Head. 2011. 433pp. Index. Pb.: £14.99. isbn 978 1 84792 111 6.

Published in International Affairs, September 2011.

 

Greg Muttitt’s study of Iraqi oil policy since 2003 ends with the sobering conclusion that ‘oil looks set to be a destabilising influence on Iraq’s future’ (p. 360). The outcome of the bidding rounds of June and December 2009, which gave international companies rights to 54.5 per cent of Iraq’s proven reserves, seems to justify his fears. Much public attention has been paid to the hard bargain driven by Baghdad on the remuneration fees it will pay for new production, which are considered low. But Muttitt focuses on lacunae in the contracts that make them inherently unstable.

 

The first contract awarded, to BP and China National Petroleum Corporation for the Rumaila field, was renegotiated in secret despite ‘a theatrical show of transparency’at the auction: the government has not yet published the contract as it promised, but a leaked copy shows that risk allocation was shifted ‘fundamentally’ to the state, Muttitt writes (pp. 325–6). The final version provides for compensation to be paid if production is restricted by OPEC quotas – a crucial change, since the aggregate production targets of the contracts, which would raise Iraqi output from around 2 million barrels per day (bpd) to 11million bpd, would have a material effect on world supply.

 

Not only are the contracts opposed by many Iraqi politicians and oil industry executives as unfavourable to the country, Muttitt writes, but – given the failure of repeated attempts to pass a new federal oil law – they are also illegal, since current laws require contracts tobe approved by parliament. And that is to say nothing of the questionable legal status of a string of production sharing agreements signed by the Kurdistan Regional Government without Baghdad’s agreement.

 

How Iraq, holder of the world’s third-largest proven reserves, got into this position is the subject of Muttitt’s main narrative. He traces the actions of the US and UK governments, international oil companies (IOCs) and Iraqi players, in the battles around the post-Saddam constitution, the failed oil law and the contracts. There are places where this reviewer would have liked more detail (for instance on Shell’s associated gas contract or on the remarkablelack of participation of US companies in the bidding rounds) – but Muttitt’s aim is to make transparent, for a general audience, policy discussions many of whose protagonists prefer to work behind closed doors.

 

Muttitt has been a campaigner by turns for greater transparency in the oil industry andagainst the war, and makes no pretence of neutrality. But this is no simplistic ‘war for oil’narrative. Western companies benefited from denationalization, he argues, but the war was‘not brought on by oil company lobbying’ (p. 39). He should know: his dissection of therelationships of IOCs and politicians, strengthened by documents prised from London andWashington under freedom of information laws, is the book’s big strength. Readers will be intrigued by accounts of meetings between IOCs, lobbyists and British and American officials; enlightened on the involvement of former company executives in composing draftsof the oil law about which Iraqi parliamentarians knew nothing; and perhaps unsurprised that the British government acknowledged its ‘vital interest’ in the future shape of the Iraqi oil industry in private, while vehemently denying any such interest in public (p. 38).

 

By Muttitt’s account, the occupying powers were guided less by firm principles thanby an ideological presumption that the oil industry’s future lay in the IOCs’ hands. They‘could not accept that there might be a legitimate political position that opposed transferring control [to the IOCs]’ (p. 358), he argues. So they worked with favoured Iraqi politicians to marginalize those who argued against it.

 

Muttitt furnishes abundant evidence that the blueprints for the postwar oil industry,worked up by western advisers and implemented by Oil Minister Hussain al-Shahristani,envisaged a powerful role for IOCs, a weakened national oil company and a humbled workforce. Under the occupation, oil industry professionals with decades of experiencewere pushed aside: ‘the best experts had been cleared out and replaced on a party and sectarian basis’ (p. 307). Western misperceptions about religious divisions played a damaging role, Muttitt argues. Two-thirds of the senior managers present in 2003 were gone within four years. Muttitt also details the short shrift given to the oil workers’ trade unions, and the use against them of Saddam’s dictatorial anti-trade union laws, which seven years after his removal were still in force (p. 348).

 

Iraq’s future trajectory is still far from decided. The forces shaping its oil industry, which will play such a decisive part, are subject to far too little public scrutiny. This book goes along way to putting that right.

 

Simon Pirani, Oxford Institute for Energy Studies, UK

 

International Affairs vol. 87, no. 5, 2011

 

*** More information about Fuel on the Fire HERE.

 

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