Wednesday, April 28, 2010

Sadr: Renegotiate 'illegal' Iraq oil deals

BAGHDAD, April 28 (UPI) -- The political bloc led by firebrand cleric Moqtada al-Sadr, who will likely decide who will govern in the wake of inconclusive March elections, has demanded that "illegal" contracts signed with foreign oil companies in 2009 be negotiated.

If he has his way, and that's a distinct possibility given his current kingmaker status, it could jeopardize Iraq's ambitious reconstruction plans and alter the dynamics of the global oil market.

Sadr's bloc insists the 20-year contracts, under which some of the world's major oil companies such as Royal Dutch Shell and Exxon are committed to quadrupling Iraq's oil output over the next six years, are "illegal" because they were never ratified by parliament.

"As they stand," said Saleh al-Muhammadawi, a leading official in Sadr's movement, "these contracts contain clauses that we're certain will damage Iraq's economy and that will constitute an economic invasion.

"In addition to that, the oil contracts were signed by the government without getting the approval of parliament and that is unacceptable," he told The National, an English-language Gulf daily published in Abu Dhabi.

"In pushing through these deals, the Iraqi Oil Ministry has exceeded its powers and acted beyond its legal authority."

The Sadrists' assertion that parliament hasn't approved the contracts is correct. But that's because the fractious 325-seat national assembly failed to pass an oil and gas law regulating the industry and providing for an equitable division of energy revenues between the various regions.

Taking the whole issue back to Square One could be a risky and costly undertaking, no matter which of the two main political coalitions gets to form the next government.

The Shiite-dominated State of Law alliance headed by Prime Minister Nouri al-Maliki came out of the March 7 polling neck-and-neck with the rival Iraqiyya coalition headed by former Prime Minister Iyad Allawi which has prominent support from the minority Sunnis.

Sadr's movement took some 40 seats in the election, which gives him a lot of weight in deciding which coalition will head the next government. Maliki would be reluctant to agree to renegotiating the contracts that were secured by his outgoing government.

Relations between Sadr and Maliki have long been strained. Maliki sent the Iraqi military against Sadr's Shiite militia, the Mehdi Army, in its southern stronghold two years ago and that still rankles his rank-and-file.

Saad Bayati, a member of parliament with Maliki's coalition, defended the contracts. "They're good deals," he said.

"They were approved by Iraqi and international lawyers and they're in our interests. I don't think there will be problems when it comes down to it because these deals are clearly in Iraq's interests."

Iraqiyya has said any move to cancel the contracts would seriously harm Iraq's credibility and could have disastrous economic consequences.

But Hani Hillal, a top adviser to Allawi, told The National that he agreed that all future oil contracts should be placed before parliament for approval.

The Oil Ministry, which signed the contracts awarded after two auctions in Baghdad, asserts they will provide "more than $100 billion worth of investment" that will upgrade Iraq's long-neglected, war-battered oil industry.

The contracts maintained Iraqi sovereignty over its oil industry, which remains in state hands, and forced the foreign companies to accept a cap of around $2 for every barrel of oil they produced rather than the $5-$6 some demanded.

Hussein al-Shahristani, oil minister in Maliki's outgoing government and architect of Iraq's ambitious energy program, wants to boost output from 2.5 million barrels per day to 10 million-12 million bpd over the next few years.

Many industry insiders believe the Iraqi production objectives aren't achievable because of a serious lack of infrastructure and the country's security problems.

And besides, they argue, boosting production to such a huge level would cause a major rift with the Organization of Petroleum Exporting Countries, which operates on a production quota system to control prices.

They argue that a more modest production boost -- 1.5 million-2 million bpd -- would be more achievable and less disruptive.

David Kirch, an energy analyst with the PFC consultancy in Washington, said, "Iraq's return changes the market's dynamics."

He said Iraq's output in this scenario "would greatly relieve the long-term pressures that pushed oil prices above the $100-a-barrel level a few years ago.

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