'If this was not about oil in 2003, it certainly is now'

From Iraq: All eyes on the oil prize by Chris Newby

Control of the oil wealth in the predominantly Kurdish area of northern Iraq is a major issue underpinning a lot of tensions. That oil wealth is potentially vast. Estimates put the reserves in Iraq at 115 billion barrels, probably more than Iran's and second only to Saudi Arabia. Yet production is still running at 100,000 barrels per day (bpd) lower than the pre-war daily average of 2.5 million.

In post-Saddam Iraq, the US government was hoping to dramatically increase output under the control of predominantly US oil companies. To try to achieve this aim Paul Bremer, Bush's chief representative in Iraq in the year following the invasion, under the guise of removing all members of Saddam Hussein's Baath party from their positions, sacked oil technicians, engineers and administrators leaving behind only a skeleton crew of Iraqi oil workers to manage the existing production.

Bremer was hoping that private oil companies, eager to exploit the oil wealth, would come in with their workforces to take over. Some companies did, but attacks on oil pipelines and facilities increased from 200 in the first two years of occupation to 600 in 2007. In part this was in response to Bremer ripping up agreements over access to oil by the local population.

The major oil companies weighing up the risks decided the danger was too great at that stage. Also, significant action was taken by Iraqi oil workers striking against the privatisation of oil facilities in Basra.

Arguments developed between the Iraqi government and US about how the oil fields could be developed. None of these arguments centred on improving conditions for ordinary Iraqis, but who gets the biggest share of the oil wealth, the Iraqi regime or the oil companies.

In an attempt to develop the oilfields, on 2 January 2009 the Iraqi government offered a new deal to oil companies wanting to invest in Iraq, offering them $2 for every barrel they extracted after their original investment costs had been met.

The major oil companies initially rejected these terms out of hand, demanding complete control over production and payments of $25 per barrel! However, the Chinese National Petroleum company was keen to gain a foothold in Iraq and get its hands on some of the vast reserves. It induced BP, its partner in Iraq, to develop the Ramaila oilfield near Basra on the Iraqi government terms.

As a result of this other companies, not wanting to see the Chinese government gain all the most lucrative contracts, accepted contracts on the initial terms. These companies are mainly state-owned but include Shell and Exxon.

However, some members of the Iraqi parliament are now challenging these contracts, no doubt wanting to get their own hands on this oil wealth but also feeling the pressure from ordinary Iraqis angry at seeing jobs and the oil wealth leaving Iraq.

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