US plans to ditch industry rivals and force end of Opec, write Peter Beaumont and Faisal Islam

Peter Beaumont and Faisal Islam
Sunday November 3, 2002
The Observer

The leader of the London-based Iraqi National Congress, Ahmed Chalabi, has met executives of three US oil multinationals to negotiate the carve-up of Iraq's massive oil reserves post-Saddam.

Disclosure of the meetings in October in Washington - confirmed by an INC spokesman - comes as Lord Browne, the head of BP, has warned that British oil companies have been squeezed out of post-war Iraq even before the first shot has been fired in any US-led land invasion.

Confirming the meetings to US journalists, INC spokesman Zaab Sethna said: 'The oil people are naturally nervous. We've had discussions with them, but they're not in the habit of going around talking about them.'

Next month oil executives will gather at a country retreat near Sandringham to discuss Iraq and the future of the oil market. The conference, hosted by Sheikh Yamani, the former Oil Minister of Saudi Arabia, will feature a former Iraqi head of military intelligence, an ex-Minister and City financiers. Topics for discussion include the country's oil potential, whether it can become as big a supplier as Saudi Arabia, and whether a post-Saddam Iraq might destroy the Organisation of Petroleum Exporting Countries.

Disclosure of talks between the oil executives and the INC - which enjoys the support of Bush administration officials - is bound to exacerbate friction on the UN Security Council between permanent members and veto-holders Russia, France and China, who fear they will be squeezed out of a post-Saddam oil industry in Iraq.

Although Russia, France and China have existing deals with Iraq, Chalabi has made clear that he would reward the US for removing Saddam with lucrative oil contracts, telling the Washington Post recently: 'American companies will have a big shot at Iraqi oil.'

Indeed, the issue of who gets their hands on the world's second largest oil reserves has been a major factor driving splits in the Security Council over a new resolution on Iraq.

If true, it is hardly surprising, given the size of the potential deals. As of last month, Iraq had reportedly signed several multi-billion-dollar deals with foreign oil companies, mainly from China, France and Russia.

Among these Russia, which is owed billions of dollars by Iraq for past arms deliveries, has the strongest interest in Iraqi oil development, including a $3.5 billion, 23-year deal to rehabilitate oilfields, particularly the 11-15 billion-barrel West Qurna field, located west of Basra near the Rumaila field.

Since the agreement was signed in March 1997, Russia's Lukoil has prepared a plan to install equipment with capacity to produce 100,000 barrels per day from West Qurna's Mishrif formation.

French interest is also intense. TotalFinaElf has been in negotiations with Iraq on development of the Nahr Umar field.

Planning for Iraq's post-Saddam oil industry is being driven by a coalition of neo-conservatives in Washington think-tanks with close links to the Bush administration, and with INC officials who have long enjoyed their support. Those hawks have long argued that US control of Iraq's oil would help deliver a second objective. That is the destruction of Opec, the oil producers' cartel, which they argue is 'evil' - that is, incompatible with American interests.

Larry Lindsey, President Bush's economic adviser, recently said that a successful war on Iraq would be good for business.

'When there is a regime change in Iraq, you could add three to five million barrels [per day] of production to world supply,' he said in September. 'The successful prosecution of the war would be good for the economy.'

Analysts believe that after five years Iraq could be pumping 10m barrels of oil per day. Opec is already starting to implode, with member nations breaking quotas in an attempt to grab market share before oil prices fall.

Russian concern over a future INC-inspired carve-up of Iraq's oil to the benefit of the US has become so intense that it recently sent a diplomat to hold talks with INC officials. At that meeting in Washington on 29 August the diplomat expressed concern that Russia would be kept out of the oil markets by the US.

A model for the carve-up of Iraq's oil industry was presented in September by Ariel Cohen of the right-wing Heritage Foundation, which has close links to the Bush administration.

In The Future of a Post-Saddam Iraq: A Blueprint for American Involvement, Cohen strikes a similar note to Chalabi, putting forward a road map for the privatisation of Iraq's nationalised oil industry, and warning that France, Russia and China were likely to find that a new INC-led government would not honour their oil contracts.

Cohen's proposal would see Iraq's oil industry split up into three large companies, along the areas of ethnic separation, with one company in the largely Shia south, another for the Sunni region around Baghdad, and the last in the Kurdish north.