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The World | SHOWDOWN WITH IRAQ

Gauging Promise of Iraqi Oil

Ousting Hussein could open the door for U.S. and British firms. French, Russian and Chinese rivals would lose their edge.

March 12, 2003|Warren Vieth and Elizabeth Douglass | Times Staff Writers

WASHINGTON — Maybe it's a coincidence, but American and British oil companies would be long-term beneficiaries of a successful military offensive led by the United States and Britain to remove Iraqi President Saddam Hussein.

Industry officials say Hussein's ouster would help level the playing field for U.S. and British firms that have been shut out of Iraq as Baghdad has negotiated with rivals from other countries -- notably France, Russia and China, three leading opponents of war.

A post-Hussein Iraq also would be a bonanza for the U.S.-dominated oil-services industry, which is in the business of rehabilitating damaged infrastructure, reversing declining output from aging fields and providing essential support work to drillers and explorers. A leader in that industry is Halliburton Co., where Dick Cheney was chief executive before becoming vice president.

The confluence of foreign policy objectives and commercial interests is fueling suspicions that U.S. and British war plans are motivated in part by a thirst for Iraqi oil. Those concerns would be magnified, experts caution, if Washington winds up calling the shots in a postwar Baghdad.

"All over the world, people will be watching very carefully," said Issam Al-Chalabi, who ran Iraqi National Oil Co. for four years and served as Hussein's oil minister for three.

"Even if they give only 10% of the work to Americans, people will say the Americans are being favored if there is supervision by the United States," said Al-Chalabi, now a consultant in Amman, Jordan. "But let the Iraqis decide, and no one can say they've been under pressure, even if they give 50% to American companies."

Experts say it would make sense for U.S. and British firms to get a significant share of any repair and development jobs in Iraq, because they are such major players in the global industry with arguably the best technology and professional expertise. That would be recognized, analysts say, even if the United States left all postwar decision-making to Iraqis.

And with the door open to companies such as Exxon Mobil Corp. of Irving, Texas, and Royal Dutch/Shell Group of London, the losers could be the French, Russian and Chinese oil companies that have either signed contracts or negotiated preliminary agreements to drill in Iraq.

That the three countries wield veto power in the U.N. Security Council is widely believed by industry experts and U.S. officials to be one reason their companies received favorable treatment in Baghdad, although Hussein's government also has negotiated with companies from at least two dozen other countries.

The company with perhaps the most at stake is Paris-based TotalFinaElf, which in recent years negotiated, but never signed, agreements to develop two of Iraq's largest oil fields, Majnoon and Nahr Bin Omar. The contracts, valued at $7 billion, could ultimately double Total's oil reserves and boost its production by 400,000 barrels a day.

Total CEO Thierry Desmarest declared last month that he was not about to cede the field to U.S. and British rivals. Desmarest acknowledged that France's opposition to a likely war could make Total's standing in Iraq "more complicated," but he expressed confidence the company could land new contracts if allowed to engage in good-faith negotiations.

"We have shown in the past that we are able to defend ourselves on an equal footing with our peers even in some areas where there was a reputation of significant American influence," Desmarest said.

The French, among the original members of the international consortium formed in 1928 to develop Iraq's reserves, continued to enjoy favored treatment in Baghdad after Iraq nationalized its oil industry in 1972. Russia's oil industry also had special access after Iraq tilted toward the Soviet Union during the Cold War.

After the 1991 Persian Gulf War, the U.S. government prohibited American firms from engaging in any commercial activities or business negotiations with the Iraqi government. United Nations sanctions barred foreign companies from investing in Iraq's oil sector, though they were allowed to negotiate deals for the future. One reason Total's contracts were never consummated was that the company wanted to include language making the work contingent on the lifting of sanctions, and Hussein's government refused.

Major oil companies might not be the only commercial casualties of war.

Petrel Resources, a tiny oil firm in Dublin, Ireland, has been negotiating with Hussein's government since 1978 for exploration rights in Iraq's western desert, and recently signed a contract. It's unclear whether the contract would be recognized by a new regime. And if U.S. and British companies also are in the game, Petrel could be out of luck.

"We've done some very good work, but we can't compete with the multinationals," said Petrel Chairman John Teeling. "They'll crunch us and jump on us as much as they can."

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