As was expected (and as I wrote about in August), the Iraqi government has voided Lukoil’s contract to develop the vast West Qurna oil field. The contract had been canceled by the Saddam government itself before the US-led invasion, so this final decision was relatively expected. However, the New York Times article makes an emphasis on the role of US advisers in the final decision:
Early in the American occupation, the question arose whether the Hussein government’s decision [to cancel the previously-awarded contract to Lukoil] was valid, said Michael Stinson, the former chief adviser to the Iraqi Oil Ministry. The answer was supplied by the principal American legal adviser to the ministry at the time, Robert Maguire, who Mr. Stinson said was then working for the Defense Department. Mr. Maguire drew on pre-Hussein-era law to justify the cancellation, Mr. Stinson said.
The article doesn’t mention US oil firm Conoco-Phillip’s 20% stake in Lukoil, which was thought to be a possible aid in bargaining to keep the Russian company’s hold on the oil field. Nor does it say that Lukoil may receive some form of preferential treatment in the field’s new tender given the firm’s pre-production work and experience in the area.
The article also ties in the Russian threat of reneging on Paris Club debt forgiveness to Iraq as a result of this move, but Russian officials had already made it clear that the two issues will not be directly linked. There may yet arise another issue surrounding the Iraq’s debt, but it is worth waiting until after the new tender and contracts for West Qurna are drawn up to make too many conclusions. Iraq seems to be attempting to reassert its own national oil company into future major projects.
While oil has been expected to be a major contributor to Iraq’s budget and economic recovery, the Times’ Sunday magazine has a lengthy article on the “Perils of Petrocracy” by Tina Rosenberg, which — covering Chavez’s “gospel greased by oil,” Terry Lynn Karl’s “paradox of plenty” — is a cautionary tale on too much state involvement within the oil sector.
In the future, though, state-run oil companies will be a driving force in the global energy market — a working rubric for their management will be essential for both the benefit of consumers as well as the producing countries themselves.
Note: My friend Sam raised a good point, that Iraq has a long path before entering the same level of “petrocracy” Chavez has created in Venezuela. I just wanted to stress the importance of finding the best way to balance state oversight and private management in the current and future global oil market. Iraq, given it’s relatively clean slate following the devastation and disruption caused by the US-led invasion, will be an interesting study as it further develops.