/ 12 January 2004

Oil to Iraq (and to the US)

Officials are likely to recommend the creation of a state-run company to own and manage the Iraqi oil industry, shutting out foreign investment and countering, in part, allegations that the United States-led invasion of the country was merely an oil grab.

Both US and Iraqi oil officials are proposing a state-owned business model based on similar arrangements in neighbouring Saudi Arabia and Kuwait.

This approach differs markedly from the US’s desire to liberalise other parts of the Iraqi economy, where policymakers are investigating wide-scale privatisation of state-owned enterprises.

Advisers believe the politically charged oil industry, where there are fears of inflaming nationalist anger, is a special case. They suggest a professional management team be installed to run the national oil company, which should be protected from political interference on a day-to-day basis but answer to a government oil minister.

In an interview with The Wall Street Journal, Robert McKee, the senior oil adviser to the Coalition Provisional Authority (CPA), said: ”Our preference is definitely in that direction. It is just pragmatism.”

A report being prepared for the interim oil minister would highlight ”best practice” from other state-run oil firms, he said.

The Americans and the Iraqis say a state-run company could still attract massive foreign investment. In practice, however, the Saudi Arabian and Kuwaiti examples suggest there is unlikely to be much opportunity for US and other international oil companies.

One British oil industry executive said: ”There is no indication that the Iraqis will behave any differently from the rest of the Middle East, which steadfastly refuses to offer any investment opportunities with a real return to foreign investors.”

But the gas-guzzling Americans know the creation of a stable state-run oil industry would still be in their best interests. Iraq has proven oil reserves of 112-billion barrels, second only to Saudi Arabia. With the Saudi kingdom displaying signs of increasing instability, the US needs an effective replacement on hand.

But as one door closed on foreign investment another opened on Wednesday when the Pentagon invited bids for contracts worth $5-billion to rebuild Iraq, the first in a string of deals funded by $18,6-billion allocated for the reconstruction effort.

Tenders were invited for 17 construction projects, promising an open and transparent bidding process. There are 63 eligible countries, excluding those that did not support the US invasion of Iraq.

The expected flood of Western companies entering the Iraqi market began this week when PepsiCo signed a deal to bottle and distribute its products. The move is expected to create 2 000 local jobs.

  • Meanwhile, report Luke Harding and Richard Norton Taylor, it was announced this week by the most senior US official in Iraq, Paul Bremer, that more than 500 Iraqi prisoners held without charge were to be released from prison on January 8 as a gesture of goodwill.

    The move follows pressure behind the scenes from British officials in Baghdad who have been alarmed at the large numbers of Iraqis scooped up by the US military during routine operations.

    In a move apparently designed to deflect growing criticism of the US’s human rights record in Iraq, Bremer said the release of prisoners was in the interests of ”reconciliation. It is time for Iraqis to make common cause in building the new Iraq.”

    Officials at the CPA in Baghdad have recently reviewed the issue of detainees after many complaints from Iraqis that their relatives have simply disappeared.

    ”There needs to be a process which is conciliatory to the degree that those who are not involved in gross crimes are released back to their communities as soon as possible, in the spirit of broader reconciliation,” one British official said.

    The 506 prisoners represent about 4% of the 12 800 prisoners in US custody in Iraq, a figure that includes 4 000 members of an anti-Iranian militia. None of the detainees has been charged. Some have been in jail for nine months. The US military has refused to allow them to see a lawyer.

    Bremer promised that the families of those still being held in US prisons would be given more access to their relatives. He also said that those released would have to sign a statement renouncing violence and ask a tribal leader to take responsibility for them. ”They made a mistake and they know it. But we are prepared to offer some of them a new chance.”

    The US also announced it was quadrupling the amount of money to be spent on political transition in Iraq ahead of the handover of power in July to a provisional Iraqi assembly. At the same time, new rewards were offered for information leading to the killing or capture of 30 Iraqis suspected of directing the insurgency against US occupation. US officials said the coalition intended to take an ”increasingly aggressive” attitude to Iraq’s resistance.

    The amnesty decision coincided with another day of unrest across Iraq. In Falluja US troops killed an Iraqi couple after firing a shell at their house. Their five children were unhurt.

    Neighbours said US troops had mistakenly thought they had been shot at from the house. ”They brought in their tank and fired from 200m away,” one neighbour said. — Â