Draft Oil Measure Sent to Parliament

[tequila]

Washington Post (http://www.washingtonpost.com/wp-dyn/content/article/2007/05/02/AR2007050202553_pf.html)summary and NY Times' (http://www.nytimes.com/2007/05/03/world/middleeast/03iraq.html?hp=&pagewanted=print)take. Focus is on Kurdish concerns about the bill.

Wash Post:


Oil Minister Hussein al-Shahristani told reporters in Saudi Arabia (http://www.washingtonpost.com/wp-srv/world/countries/saudiarabia.html?nav=el) that he believed the legislation would be passed by the end of the month. But some Iraqi parliament members expect a more protracted struggle, as Sunnis, Shiites and Kurds vie for shares of revenue from the world's third-largest oil reserves.

The prime minister of the Kurdistan Regional Government, Nechirvan Barzani, told Prime Minister Nouri al-Maliki (http://www.washingtonpost.com/wp-srv/related-topics.html?tid=informline&subject=Nouri+al-Maliki) that Kurds would not accept the oil law unless a piece of companion legislation, and accompanying annexes detailing revenue distribution, were amended. The changes would allow the Kurds greater concessions in developing oil fields in their territory, according to Mahmoud Othman (http://www.washingtonpost.com/wp-srv/related-topics.html?tid=informline&subject=Mahmoud+Othman), a Kurdish legislator. Kurds are unhappy with the percentage of underground oil resources that would be controlled by the Iraqi National Oil Company, effectively putting the resources under national, rather than regional, jurisdiction.


NYTIMES:

...

In Iraq, the Kurds have taken issue with a new provision that was quietly packaged with the draft oil law by the Shiite-led Oil Ministry last month. The measure would essentially cede control of the management of nearly all known oil fields and related contracts to a state-run oil company to be established after passage of the law, said a spokesman for the Kurdish regional government.

The spokesman, Khalid Salih, said the provision violated a clause in the Constitution that says the central government must work with regional governments to determine management of known fields that have not been developed. The Kurds, who have enjoyed de facto independence in the north since 1991, have been arguing for maximum regional control over oil contracts.

The provision is part of four so-called annexes that are to be debated with the draft oil law in Parliament. Any objection to one or more of the annexes will stall passage of the law.

...

The Kurds held up cabinet approval of the draft law for months, seeking to ensure that it guaranteed maximum regional autonomy to sign oil contracts. They fear that the central government might steer exploration and development contracts toward the Shiite-dominated south, at the expense of other regions.

The Kurds recently discovered two fields in northern Iraq, after signing contracts with a Norwegian and a Turkish company. But on Wednesday the Iraqi oil minister, Hussain al-Shahristani, a Shiite, said at a conference in Saudi Arabia that any contracts signed by the Kurds before passage of the oil law were considered invalid and illegal, news agencies reported.

In Erbil, Mr. Salih, the Kurdish spokesman, said the Kurdish contracts were legal and “had been prepared according to international standards and norms.”

[tequila]

CSMonitor story on Iraqi oil production (http://news.yahoo.com/s/csm/20070507/ts_csm/aoily;_ylt=AnXx0LFoKYSEzMVVrptaw0PMWM0F), still a disappointment after four years, despite the fact that it is the source of some 95% of the Iraqi government budget.



...

Four years after the fall of Saddam Hussein, the story of Iraqi petroleum remains one of great promises unfulfilled. Iraqi oil did not pay for the first round of postwar national reconstruction, as Bush administration officials had predicted. Nor has the industry come close to matching its decades-old pumping record of 3.7 billion barrels a day – a level at which Iraq might become a vital source of oil for thirsty world markets.

"I think they are years away from being a reliable 4-million-barrel-a-day producer," says Frank Verrastro, director and senior fellow in the energy program of the Center for Strategic and International Studies (CSIS).

...

According to oil ministry experts, overall "the Iraqi oil infrastructure is in desperate need of upgrades and improvements," says the SIGIR assessment.

That need can be seen in the nation's production levels. In the first quarter of 2007 Iraqi crude oil production averaged 1.95 million barrels per day, according to the US Special Inspector General. That's far short of the Iraqi goal of some 2.5 million BPD.

In fact, Iraq has missed oil production targets every quarter since 2004.
Unsurprisingly, the nation's continued violence is a big reason for this shortfall. Since the US invasion there have been some 400 insurgent or terrorist attacks against pipelines, pumping stations, oil fields, and other parts of Iraq's oil infrastructure, according to the Brookings Institution, a Washington think tank.

But security isn't the only problem. Mismanagement of oil reservoirs, inadequate maintenance of pumps and pipes, and shortage of storage facilities at offshore loading terminals in the Gulf has hampered production as well, according to a recent report on Iraq's oil sector by Amy Myers Jaffe, an energy expert at Rice University's James A. Baker III Institute for Public Policy.

Nor has Iraq brought any new oil fields on-line since 2003. "The main reason for this lack of investment has not been lack of funds, but rather the politicization of the oil ministry, the absence and/or exodus of trained personnel, and poor or corrupt management in the oil sector," writes Ms. Jaffe.

Meanwhile, the future of Iraq's draft oil law appears in doubt. Iraqi Kurds and Sunnis have expressed deep misgivings about some legislation details, each group for its own reasons ...

[UCrawford]

The story gets worse...the audit the oil revenues report originated from also found that the Iraq reconstruction efforts were stalled or failing in almost every other area as well. Here's the link for the full audit.

http://www.sigir.mil/reports/quarterlyreports/Apr07/pdf/Report_-_April_2007_Complete.pdf

[Dr Jack]

One of the big problems could be that no one really knows what the oil production goals actually are...

The CS Monitor Report states the goal is 2.5 million BPD:


That need can be seen in the nation's production levels. In the first quarter of 2007 Iraqi crude oil production averaged 1.95 million barrels per day, according to the US Special Inspector General. That's far short of the Iraqi goal of some 2.5 million BPD.

The SIGIR report (on page 39) shows the goal of 2.8 million BPD (based on an April 2006 inquiry to DOS).

The State Department Weekly Status Report shows the goal of 2.1 million BPD on page 17:

http://www.state.gov/documents/organization/84347.pdf

The goal seems to be a moving target...

[tequila]

Good point, DrJack. It seems appropriate to mention here that oil production figures themselves from the Ministry are not necessarily reliable given the extent of oil smuggling (http://www.iht.com/articles/2006/06/04/africa/web.0604smuggle.php)in Iraq as well.

[GPaulus]

It is true that in a perfect world, we would like to see Iraq deliver to the market 5 million barrels of oil per day. This would provide the necessary revenue to fund the rebuilding effort. Unfortunately, it is not a perfect environment and the insurgents depend on Iraq spending large sums of money to rebuild oil and natural gas infrastructure so that they can once again destroy the facilities. The insurgents want chaos and what better way to produce chaos then to destroy infrastructure especially when that infrastructure is viewed as helping to fund one faction over the other. And when Iraq spends large sums on oil infrastructure, it takes away money from local economy and reconstruction in otherwords, it has an opportunity loss factor. The achilles heal is that without oil revenue the country cannot rebuild, but if we fund oil infrastructure and it gets destroyed, recovery will not take place. It is a catch 22. The answer is really fundamental--sell the oil in the ground as "futures." A foreign exchange credit to those countries willing to fund reconstruction. It can be likened to selling war bonds during WWII only these bonds are backed by future oil deliveries. As a future however and fortunately for those obtaining the oil credit, the oil cannot be sold at market value. It must be sold at below the current opportunity cost of the oil.

In a paper that I will be delivering in July to the University of Massachusetts titled "Creating a Sustainable Iraq" I discuss this topic in great detail. Oil is the only answer, but don't expect it to be delivered anytime soon.

[SWJED]

You are right about "not any time soon". In today's NY Times - Billions in Oil Missing in Iraq, U.S. Study Says (http://www.nytimes.com/2007/05/12/world/middleeast/12oil.html?hp) by James Glanz.


Between 100,000 and 300,000 barrels a day of Iraq’s declared oil production over the past four years is unaccounted for and could have been siphoned off through corruption or smuggling, according to a draft American government report.

Using an average of $50 a barrel, the report said the discrepancy was valued at $5 million to $15 million daily.

The report does not give a final conclusion on what happened to the missing fraction of the roughly two million barrels pumped by Iraq each day, but the findings are sure to reinforce longstanding suspicions that smugglers, insurgents and corrupt officials control significant parts of the country’s oil industry...

[GPaulus]

You are right about "not any time soon". In today's NY Times - Billions in Oil Missing in Iraq, U.S. Study Says (http://www.nytimes.com/2007/05/12/world/middleeast/12oil.html?hp) by James Glanz.

You are correct. Oil is being stolen every day. When I was there, we saw individuals along the pipeline digging catch basins and then puncturing the lines to collect the oil. I am certain that there are other much more elaborate schemes to syphon off oil revenue. It is the oil money that is fueling the insurgency and it is oil money that is giving legitmacy to the criminal based insurgency. They hire, they kill and they control the battlespace with fear and money.

[tequila]

Iraqis resist U.S. presure to enact oil law (http://www.latimes.com/news/nationworld/iraq/la-fg-oil13may13,0,7079450,print.story?coll=la-home-center). LATIMES update on problems with the Iraqi oil law. Kurdish objections and resistance to what is seen as the "Washington clock", driven by political concerns in the U.S. predominate.

[Jedburgh]

GAO, 18 Jul 07: Serious Challenges Impair Efforts to Restore Iraq’s Oil Sector and Enact Hydrocarbon Legislation (http://www.gao.gov/new.items/d071107t.pdf)

Despite 4 years of effort and $2.7 billion in U.S. reconstruction funds, Iraqi oil output has consistently fallen below U.S. program goals. In addition, the State Department’s data on Iraq’s oil production may be overstated since data from the U.S. Department of Energy show lower production levels—between 100,000 and 300,000 barrels less per day. Inadequate metering, re-injection, corruption, theft, and sabotage account for the discrepancy, which amounts to about $1.8 to $5.5 billion per year. Comprehensive metering of Iraq’s oil production has been a long-standing problem and continuing need.

Poor security, corruption, and funding constraints continue to impede reconstruction of Iraq’s oil sector. The deteriorating security environment places workers and infrastructure at risk while protection efforts have been insufficient. Widespread corruption and smuggling reduce oil revenues. Moreover, Iraq’s needs are significant and future funding for the oil sector is uncertain as nearly 80 percent of U.S. funds for the oil sector have been spent. Iraq’s contribution has been minimal with the government spending less than 3 percent of the $3.5 billion it approved for oil reconstruction projects in 2006.

Iraq has yet to enact and implement hydrocarbon legislation that defines the distribution of oil revenues and the rights of foreign investors. Until this legislation is enacted and implemented, it will be difficult for Iraq to attract the billions of dollars in foreign investment it needs to modernize the sector. As of July 13, 2007, Iraq’s cabinet has approved only one of four separate but interrelated pieces of legislation—a framework that establishes the structure, management, and oversight. Another part is in draft and two others are not yet drafted. Poor security, corruption, and the lack of national unity will likely impede the implementation of this legislation....
18 Jul 07 testimony before the HCFA Subcommittee on the Middle East and South Asia regarding Reconstruction in Iraq’s Oil Sector: Running on Empty?

Joseph Christoff, GAO (http://www.internationalrelations.house.gov/110/chr071807.pdf)

Tariq Shafiq, Petrolog & Associates (http://www.internationalrelations.house.gov:80/110/sha071807.htm)

Issam Michael Saliba, Law Library of Congress (http://www.internationalrelations.house.gov:80/110/sal071807.htm)