The mother of all legal rows over who has the right to Iraq's lucrative oilfields is likely if the United States wins its war for the country itself
Tom Cholmondeley Friday November 22, 2002 The Guardian
All the players in the current quarrel can agree on one thing - Iraq has the potential to become a great oil nation again. There is a huge gap between the trickle of oil coming out of Iraq today and its capabilities.
According to Opec, the entire world's known oil reserves run to 1,000bn barrels. Iraq claims a 10th of this, just over 100bn barrels. However, in an interview before the current conflict, Taha Hmud Moussa, then Iraq's deputy oil minister, said the oil "will exceed 300bn barrels when all Iraq's regions are explored". If true, this means Iraq has a quarter of the world's oil. The UK's North Sea reserves are 5bn barrels and we are the EU's largest oil producer. Iraqi's oil is not miles offshore under a treacherous sea. This makes it cheaper than the $3 to $4 barrel oil Britain produces - much cheaper.
John Teeling, head of one of the few western companies to admit to working in Iraq, is exultant. His Dublin-based company Petrel is keen to develop unexplored oilfields. This oil could cost as little as 97 cents a barrel. "Ninety cents a barrel for oil that sells for $30 - that's the kind of business anyone would want to be in," he says. "A 97% profit margin - you can live with that."
Last month, behind the closed doors of the Royal Institute of International Affairs, leading oilmen, exiled Iraqis and lawyers held a meeting entitled "Invading Iraq: dangers and opportunities for the energy sector". One delegate said the entire day could be summarised with: "Who gets the oil?" If America changes the regime you might expect US companies to get it. But it may be more complicated than that.
History can reveal much of how this may end. Iraq's oil was originally developed through a consortium called the Iraq Petroleum Company (IPC) - split roughly a quarter share to BP, Shell, and the forerunner to Total, with the remainder owned mainly by Standard Oil and Mobil. But, in 1972, it was nationalised by the revolutionary Iraqi regime. Negotiations over nationalisation were fierce, and Geoffrey Stockwell, who headed the IPC team, had some extraordinary clashes with both Saddam Hussein and Iraq's vice-president, Salih Mahdi Ammash. Ammash said Iraq would "go through any battle with the companies that was necessary", and resort to "all means necessary". The companies would also "lose Saudi Arabian and Kuwaiti oil because if their Arab brethren did not stand by Iraq, they would use force to stop this oil flow".
After a painful battle, the IPC finally signed the nationalisation agreement on February 28 1973. Today, if "regime change" happens, we could see three of the world's largest public companies - BP, Shell and ExxonMobil - fighting for their old IPC possessions.
Back in the 1970s, the IPC was compensated for its lost oilfields, and that would normally end any future rights they might have. However, they may well try to show that the compensation deal was signed under duress. An incoming Iraqi government could face a giant legal compensation case.
"If you argue there is something amounting to duress, then you could argue the compensation agreement is invalid," says Professor Thomas Wälde, formerly principal UN interregional adviser on oil and gas law. "If I were their [the companies'] adviser, I would develop this into a bargaining chip with the new government. It would play a role in the race for getting new titles."
The stakes are high. Iraq could be producing 8m barrels a day within the decade. The maths is impressive - 8m times 365 at $30 per barrel or $87.6bn a year. Any share would be worth fighting for.
The stakes are equally high for the French, Russians and Chinese. It is striking that the three countries which delayed America's new UN Iraq resolution all have potentially massive oil pacts there. Saddam is believed to have offered the French company Total Elf Fina exclusive rights to the largest of Iraq's oil fields, the Majnoon, which would more than double the company's entire output at a stroke. Meanwhile, Russia and China have sought various deals on the supergiant West Kurna and Rumaila fields respectively. Russian company Lukoil has been assured it will not lose its stake in the 20bn barrel West Kurna field.
Former CIA director James Woolsey, who is close to the Iraqi opposition groups, recently told the Washington Post: "It's pretty straightforward. France and Russia have oil companies and interests in Iraq. They should be told that if they are of assistance in moving Iraq towards decent government, we'll do the best we can to ensure the new government and American companies work closely with them. If they throw in their lot with Saddam, it will be difficult, to the point of impossible, to persuade the new Iraqi government to work with them."
Experts on international law seem not to be on Woolsey's side, however, and a new Iraqi government may have little choice but to work with Saddam's current friends. "The majority opinion is that if a government creates a [legal] title, it survives a change of government," says Prof Wälde. "The idea that all the Iraqi oil industry is now going to be sold to Exxon, say, or BP... is not going to work."
"Regime change does not change the acquired rights companies have in the area," says Doak Bishop, vice-chair of the Institute of Transnational Arbitration. "If the Russians and the French have legal rights in those fields, then a regime change would not oust them of those rights, but it could well get pretty messy."
Should "regime change" happen, one thing is guaranteed - shortly afterwards there will be the mother of all legal battles.