WASHINGTON, D.C. (4/29) - On July 1, 2004, the Bush administration shall purport to pass sovereignty to Iraq. However, there is no real passing of any power if the right to control Iraq's major resource, oil, is not also passed. Right or wrong, the first concern of the anti-war protesters was that the U.S. was going to war for the Iraqi oil. A priority of the American military forces was preventing the burning of the oil wells. Among the first places protected by the U.S. was the Iraq oil ministry. It was a U.S. priority to get the Iraqi oil flowing and you can bet that one of the first contracts made after, if not before, the taking of Iraq was for oil. Yet, when the issue of passing sovereignty is discussed the issue of oil, contracts for oil and revenues from oil  is rarely, if ever, mentioned.

The U.S. Senate Foreign Relations Committee conducted hearings last week. Although numerous experts testified, including Richard Perle, Dr. Juan Cole, and many others, the issue of transferring control of Iraqi oil to Iraqis was not an issue. The report by Brahimi to the U.N. did not specifically make the privatization of Iraqi oil resources and what would happen with existing oil contracts an issue. Aside from cursory mention of the issue by some media, the oil, the revenues, and the status of existing oil contracts, if any, in a post-June 30th Iraq is not an issue in the transfer of "sovereignty."

How did we get to this point and what will we do about the oil issue? You can be sure that oil is, or will be, an issue in Iraq that may determine success or failure of the U.S. mission

Present government of Iraq

The Coalition Provisional Authority (CPA) is the name of the temporary governing body which has been designated by the United Nations as the lawful government of Iraq "until such time as Iraq is politically and socially stable enough to assume its sovereignty."  The CPA is led by the United States and the United Kingdom.  Ambassador L. Paul Bremer, III was named Presidential Envoy to Iraq on May 6, 2003 and in this capacity is the Administrator of the Coalition Provisional Authority. The CPA has been the government of Iraq since the overthrow of the Saddam Hussien's regime in April of 2003.

According to the CPA, it is "committed itself to rebuilding all aspects of Iraqi Infrastructure so that, upon turnover to the first democratically elected government Iraq has ever known, that government will assume authority over a country ready, both internally and externally, to function economically, provide basic services to its citizens, provide for its own defense, and to play a responsible role in the international community of nations." 

Establishing the Development Fund for Iraq

On May 21, 2003, United Nations Security Council Resolution 1483, sanctioned the establishment of the Development Fund for Iraq. Under a May 2003 U.N. Security Council resolution, the Coalition Provisional Authority is required to deposit all the proceeds of Iraqi oil exports into the fund. The resolution was intended to ensure Iraq's secretive U.S.-led civil administration was not engaged in any dubious practices in marketing the oil and was using the proceeds for reconstruction.

On May 22, 2003 President Bush issued Executive Order 13303, creating the Development Fund for Iraq and requiring all funds received from the development and sales of Iraq oil and petroleum products  to be placed in the Bank of Iraq and to be administered by the CPA.

International Advisory and Monitoring Board (IAMB)

Oil Production and sales

A February 21, 2003 CPA report to Ted Stevens
Chairman, U.S. Senate Committee on Appropriations, set forth certain information concerning Iraqi production and sales as of November 2003.

The report stated, Iraqi crude oil production for November was 63.7 million barrels. Of this 18 million barrels went to domestic production and 45.7 million barrels were sold for export for aggregate revenue totaling $1.188 billion. Average price per barrel was between $26 and $27. The average production per day was 2.12 million barrels, which exceeded the year-end target of 2.0 million barrels per day.

Crude oil production comes from two major areas, the southern oil fields near Basra and the northern oil fields near Kirkuk, with the majority of production occurring in the south. Because the Iraq-Turkey Pipeline remains closed, currently no crude oil is exported through the Turkish port of Ceyhan, and all exports go through Al-Basra Oil Terminal (ABOT). Iraqi oil revenues are limited by production capability and export capacity.

Export revenues for the month of November were $811 million. Five percent of Iraqi oil revenue is allocated to Kuwaiti war reparations, which totaled $40.6 million. The remaining 95 percent is deposited in the Development Fund for Iraq (DFI), which receives deposits from multiple funding sources and is used to support and finance the Iraqi Government’s budget.

Total oil revenues deposited into the DFI for the month of November were $770.8 million. According to the report, to date, disbursements from the DFI have been in support of the wheat purchase program, currency exchange program, electricity and oil infrastructure programs, Iraqi security forces equipment, Iraqi civil service salaries, and ministry budget operations.

Receipts and disbursements

As of April 24, according to a report by the CPA over $7 billion have been dispersed from the DFI. Over one billion dollars has been dispersed to or by the Ministry of Oil - second only to the Ministry of Finance which dispersed over $5 billion. The specifics of these disbursements is not readily available. According the CPA Administrator's Weekly Report (March 27-April 3, 2004), as of March 28, 2004, estimated crude oil export revenue reached $3.7 billion for 2004 alone.

According to an April 26, 2004 Reuters report, Baghdad has exported more than $8.2 billion in crude oil since last year's invasion of Iraq, the U.S.- led authority governing Iraq said on Monday.

According to estimates approximately $16 billion has been received by the DFI. With a very broad brush, only about $7 billion has been accounted for. At this time there has been no full accounting as to the use of the money received by the DFI and none is expected until after June 30th.

According to the Agreement of November 15th, 2003 between the CPA and the Iraqi Governing Council,  by June 30, 2004 the new transitional administration will be recognized by the Coalition, and will assume full sovereign powers for governing Iraq. Upon this transfer, the CPA will dissolve. The CPA does not specifically mention where the funds acquired by the DFI will go.

The commitment by the CPA, noted above, to provide an Iraq "ready ... to function economically" may mean that the existing contracts for oil and petroleum production and sales will remain in place. I have not found where the CPA has directly addressed the issue of the new democratic Iraqi government's ability to make new contracts for oil or to  dissolve existing ones.

No vote by IGC in CPA

Deputy Minister Faik Ali Abdul-Rasool, representing the Observer, Minister Mehdi Hafedh, requested that persons representing the Iraqi Governing Council be given the right to vote. The IAMB stated that it welcomed the presence of Iraqi nationals at its meeting and that it looked forward to attendance by Iraqi nationals at future meetings. However, the IAMB indicated that acceding to this specific request would require amendments to the IAMB's Terms of Reference. Further, such Iraqi participation raises a number of complex legal issues, including under UN SCR 1483 (2003). So far the Iraqi nationals have had no real say.

How we deal with the oil, or permit the oil to be dealt with, is an issue that goes to the heart of trust and of winning the "hearts and minds" of the Iraqi people and the world. If the perception is left that the U.S. and U.S. companies are profiteering at the expense of the Iraqi people, the Iraqi people will not trust us or anyone we are involved with.

We cannot tout freedom and create and permit economic oppression or profiteering and expect a peaceful democratic Iraq. There may always be a struggle for religious and political power and warring factions, but, the U.S. should not contribute to creating the appearance of impropriety by permitting excessive control of the oil through U.S. companies and banks which does not maximize the return to the Iraqi people.

Transferring "sovereignty" must transfer the power over the oil and that power is meaningless without start-up financing which seems to be being withheld in order to create the environment for profiteering.

Failure to address the oil issue when addressing the issue of Iraq sovereignty is petitio principii - "Begging the Question." Begging the question creates a perception of impropriety especially when billions are being spent while Iraqi cannot finance its oil industry.

We should avoid even the appearance of impropriety and seek to gain trust of the Iraqi people based with fairness not profit, transparency not secrecy and real help for the oil sector by eliminating the economic duress that will require  privatization an permit profiteering. You cannot gain the trust of the Iraqi people if there is a perception that the U.S. is taking their oil and determining whether the revenues go for reconstruction.

Thanks Beth, Doug and Rick