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    The Oil Myth

    While the abundance of oil in the Middle East has undoubtedly shaped the region’s history, with oil becoming a market commodity the importance of this resource in deciding the policies of Western governments has declined. The myth that oil dictates Western behavior in the region, however, lives on.

    While many Arabs believe that controlling oil fields was the “actual” reason behind America’s war in Iraq, nothing indicates that the US has had any say over oil resources in the country since the start of the occupation in 2003. America and its oil companies have not received any preferential treatment from the elected Iraqi government either, at least judging by the results of the several rounds of bidding for oil development and production.

    Iraq is the home of the world’s third-largest oil reservoir, with 115 billion barrels. Since the downfall of Saddam Hussein, Iraqi oil production has sat at around two million barrels per day. From day one, production was metered by the UN. Its crude is classified as “light sweet,” and can be easily transformed into gasoline. Extracting oil in Iraq is also relatively inexpensive.

    Baghdad has held three rounds of bidding and is now gearing up for a fourth. During auction, Iraqi negotiators not only proved to be stalwarts, but were so strict in their contracts that many oil companies, including US giants like Exxon, saw little or no profit in certain auctions and withdrew their bids.

    If the US occupation led to control of the Iraqi oil fields, either for free or at discounted prices, US companies would certainly have fared much better in winning contracts.

    Iraq auctioned 20-year service contracts for its oilfields. British Shell and Malaysian Petronas won control of the huge field of Majnoon, beating a rival joint bid by French Total and Chinese CNPC after Shell-Petronas lowered their fee per barrel to $1.39.

    But CNPC, together with Total and Petronas, won the smaller Halfaya field. America’s Exxon Mobil, for its part, won a bid for West Qurna 1, charging a $1.90 fee per barrel produced, while Russia’s Lukoil – together with Norway’s Statoil – won West Qurna 2 for $1.15 per barrel.

    Other national companies such as Italy’s Eni and Angola’s Sonangol were also in the game, showing that in Iraq, oil contracts went to the best bidders, American or not, and that oil prices are decided by the market.

    Iraq is now preparing for a fourth round of licensing, this time for oil exploration. Although international companies prefer production-sharing contracts for exploration blocks, Iraqi oil officials said the deals would be based on service contracts, like in development and production, which means flat fees rather than shares in the resources.

    Libya’s Moammar Qaddafi, however, offered production-sharing deals instead of flat fees. His deals proved to be more tempting than Iraq’s.

    Libya also has light sweet crude, with 50 billion barrels in reserves. After making up with Washington, London and other Western capitals in 2004, sanctions were removed, and Tripoli offered its oil fields for development in order to increase production capacity.

    Like in Iraq, the market decided oil prices in Libya, and companies had to bid for contracts. Perhaps feeling in the mood to make nice with Washington, Qaddafi allowed the awarding of contracts to tilt in America’s favor.

    In 2005 Libya auctioned 15 exploration permits. Three US companies—Occidental Petroleum, Chevron Texaco and Amerada Hess—won 11.

    In Libya, Qaddafi had already opened his doors to Western oil companies. From a realpolitik perspective, NATO should have ensured Qaddafi’s survival in order to guarantee its shares in the Libyan bids. If NATO’s helping depose Qaddafi had motivations, oil was certainly not one of them.

    In the Arab world, the myth that oil dictates Western behavior has further warped the already flawed Arab understanding of the world and its politics.

    Hussain ABDUL-HUSSAIN
    NOW Lebanon
    26.08.2011

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