Many Indians, including respected foreign policy analysts, believe that the US invaded Iraq and ousted Saddam Hussein in 2003 simply to grab his oilfields. “Its all about oil,” they said.
Well, it’s now four years since the invasion. Yet, we see no sign of the US grabbing Iraq’s oilfields. Indeed, the new law under discussion in the Iraqi legislature says, “Ownership of oil and natural gas is vested in the entire Iraqi people in all provinces and regions.”
US oil companies are not fazed: they never expected to grab the oil. However, Iraq is having a heated internal debate on sharing oil revenues between the three ethno-geographical regions: the Kurd-majority north, Sunni-majority centre and Shia-majority south.
Oil is produced mainly in the north and south, and Sunnis in the centre fear that they will get nothing if each region controls its own production. Hence, all parties have now agreed that oil will be produced by a national oil company with revenues shared by all regions and people.
However, the northern Kurds have insisted on limited autonomy for regional oil companies (subsidiaries of the national oil company) in signing contracts. Iraq’s oilfields are in bad shape after years of neglect, and need modern technology to enhance oil recovery from existing fields, and to find new fields.
The Kurds want to give production-sharing contracts to foreign companies. Some such contracts have already been signed. This has been denounced by Iraqi radicals as a sellout to foreigners. The radicals nostalgically recall Saddam’s nationalisation of oil in the 1970s. Yet, Saddam himself had signed deals with Russia’s Lukoil and France’s Total.
Those familiar with India’s oil policy will find the Iraqi controversy over production sharing mystifying, even comic. India has long signed production-sharing deals with private and foreign oil companies, and nobody regards this as a sellout.
The latest bidding round this year drew 32 domestic and 36 foreign bidders. In production-sharing deals, the foreign or private sector partner bears all exploration costs, but shares with the government any oil or gas that is found. The terms of production-sharing have varied in different rounds of bidding in India.
But typically the winning bidder whether Indian or foreign first gets enough oil to recover costs of production and exploration (called cost oil); then gets two to three times as much as profit oil; and then hands over most or all of the residual production to the government.