Over a barrel, but not a Total disaster
March 26, 2003 European Briefing by Carl Mortished
BRITAIN is not fighting a war for Iraqi oil, which is a great pity, because it would be a good thing if we did.
We should take the oil and give it to the Iraqi people. Take it from the bureaucrats, deny it to the multinationals and give it away. In so doing, we should end decades of stagnation and nationalisation and begin the process of ending the oil dependence of the nations of the Middle East.
The anti-war protesters, complete with their “Stop Esso” banners, have got it partly right but mostly wrong. They hate the idea of war for profit but, in the end, the issue is not whether profit is earned but by whom.
It is not just the young, gentle and liberal who worry about the link between war, profit and oil. Hands are wringing in the boardrooms of European oil companies. BP, Shell and TotalFinaElf are watching with anxiety as US marines open a path for Boots & Coots, the American oil firefighters. Will there be an open tender for oil concessions? Will ExxonMobil and ChevronTexaco win all the prizes? What about our share?
TotalFinaElf is in a bit of a flap. Over in Paris, the media-shy French company finds itself, again, in the front line. A workaday sort of company, Total once happily left the political limelight to its flamboyant and corrupt sister company, Elf. Since the clean-up at Elf and its subsequent merger with Total, the troubles have come thick and fast. First, there was the fouling of Brittany’s beaches by the oil tanker Erika, then a nasty explosion in a fertiliser plant in Toulouse that left 29 dead.
Today, Total finds itself a punching bag for every insecure American with a grudge against the French. Even the normally sedate Wall Street Journal has joined in, bashing the oily frogs. In an editorial entitled “A war for France’s oil”, the newspaper accused the French of undermining sanctions against Saddam in its pursuit of oil production contracts in Iraq.
The accusation is a little disingenuous because the so-called Total contracts — these cover two monster oilfields, Majnoon and Nahr Umar, believed to contain about 30 billion barrels — are today hardly worth a fig.
Total knows its interests are at risk, hence the anxiety and frequent protestations that the Americans must ensure fair play. Total signed nothing of merit. Had it done so it would have been in breach of UN sanctions. Were a future Iraqi government to deny Total, the French firm would have trouble claiming damages without admitting the existence of a deal that flouted the UN rule.
But the French will probably recover something for their pains. After all, Total was an investor in Iraq before anyone else. Its predecessor, Compagnie Française des Petroles, discovered oil at Kirkuk in 1927.
And even if the hawks in Washington scream for vengeance, the oilmen in Houston are more pragmatic. Total has knowledge, and for that ExxonMobil will be happy to deal.
Tease attracts the horsemen
THEY have interests in common. The four horsemen of the Apocalypse — ExxonMobil, BP, Shell and TotalFinaElf — are riding hard to the Middle East because they must if they are to survive.
The multinationals are struggling to raise their game. Of the four horsemen, only Total is raising its oil output significantly. ExxonMobil has stagnated for several years. The reason is simple; outside of the Middle East, the easily accessible oil is gone. The North Sea is in decline, as is Alaska. Oil companies are now forced to spend huge sums getting oil in dangerous locations, sometimes in water depths of several kilometres.
The Gulf is a tease. According to BP’s figures, the region accounts for 65 per cent of the world’s known reserves but only 29 per cent of global production. You may think that ExxonMobil is the world’s biggest oil company, but in terms of output, it is Saudi Aramco. State oil companies, includng Aramco, Iran’s NIOC, Pemex of Mexico and PdVSA of Venezuela are the true four horsemen while Exxon ranks only fifth, according to the Centre for Global Energy Studies.
It rankles. Ever since they were chucked out by Arab nationalists in the 1970s, the multinationals have been clamouring to get back in. Producing oil from Arabian desert sands is a lot cheaper than west of the Shetlands and a lot safer.
But the door remains shut apart from a few crumbs distributed by Iran in the form of buybacks, a sort of oil contracting, in which the foreign investor is paid a fixed return for production. Desperate for alternatives to Opec, Washington has lobbied Nigeria, hoping to lure the oil producer from the cartel, but to no avail.
It is highly unsatisfactory on all sides. Exxon, BP, Shell and Total are running out of growth opportunities, but the Gulf state producers have failed to deliver prosperity. The oil cash has been squandered and the Gulf countries, including Iraq, remain passive rent collectors, slaves to the volatile oil price, offering no future to their citizens.
Make the Iraqis shareowning Sids
THERE is an alternative. The privatisation of Russia’s oil industry seemed, then, an embarrassing shambles. The Government gave shares in oil producers to banks in exchange for loans and a small band of ruthless men became very rich indeed. But the Russian industry thrives today, output is growing and oil cash is starting to be recycled into other industries.
Russian companies, such as Lukoil, have their fingers in Iraq, but there are other parallels. The Iraq National Oil Company (INOC) is really three companies –– northern, southern and central units.
We should insist that there be no sweetheart deals with Exxon and that the Total “contracts” be shredded. Instead, each man, woman and child in Iraq should be given three pieces of paper representing a share in three Iraqi oil companies.
Rough calculations based on the discounted value of 30 years of future production, suggest the shares might be worth $15,000 (£9,500) to each Iraqi. That could be underwritten by the Government to ensure no exploitative Russian-style share robbery took place.
With just a shuffle of paper, each Iraqi Kurd, Sunni and Shia Arab would have the capital to set up a small business, an empowerment of untold proportions. Of course, there would be shenanigans and even Iraqi oil oligarchs. Some thug from Tikrit might one day even buy his way on to the board of the Royal Opera House. A small price to pay.