N.Y. Times (June 30, 2008)

June 30, 2008

U.S. Advised Iraqi Ministry on Oil Deals
By ANDREW E. KRAMER

A group of American advisers led by a small State Department team played an integral part in drawing up contracts between the Iraqi government and five major Western oil companies to develop some of the largest fields in Iraq, American officials say.

The disclosure, coming on the eve of the contracts’ announcement, is the first confirmation of direct involvement by the Bush administration in deals to open Iraq’s oil to commercial development and is likely to stoke criticism.

In their role as advisers to the Iraqi Oil Ministry, American government lawyers and private-sector consultants provided template contracts and detailed suggestions on drafting the contracts, advisers and a senior State Department official said.

It is unclear how much influence their work had on the ministry’s decisions.

The advisers — who, along with the diplomatic official, spoke on condition of anonymity — say that their involvement was only to help an understaffed Iraqi ministry with technical and legal details of the contracts and that they in no way helped choose which companies got the deals.

Repeated calls to the Oil Ministry’s press office for comment were not returned.

At a time of spiraling oil prices, the no-bid contracts, in a country with some of the world’s largest untapped fields and potential for vast profits, are a rare prize to the industry. The contracts are expected to be awarded Monday to Exxon Mobil, Shell, BP, Total and Chevron, as well as to several smaller oil companies.

The deals have been criticized by opponents of the Iraq war, who accuse the Bush administration of working behind the scenes to ensure Western access to Iraqi oil fields even as most other oil-exporting countries have been sharply limiting the roles of international oil companies in development.

For its part, the administration has repeatedly denied steering the Iraqis toward decisions. “Iraq is a sovereign country, and it can make decisions based on how it feels that it wants to move forward in its development of its oil resources,” said Dana Perino, the White House spokeswoman.

Though enriched by high prices, the companies are starved for new oil fields. The United States government, too, has eagerly encouraged investment anywhere in the world that could provide new oil to alleviate the exceptionally tight global supply, which is a cause of high prices.

Iraq is particularly attractive in that light, because in addition to its vast reserves, it has the potential to bring new sources of oil onto the market relatively cheaply.

As sabotage on oil export pipelines has declined with improved security, this potential is closer to being realized. American military officials say the pipelines now have excess capacity, waiting for output to increase at the fields.

But any perception of American meddling in Iraq’s oil policies threatens to inflame opinion against the United States, particularly in Arab nations that are skeptical of American intentions in Iraq, which has the third-largest oil reserves in the world.

“We pretend it is not a centerpiece of our motivation, yet we keep confirming that it is,” Frederick D. Barton, senior adviser at the Center for Strategic and International Studies in Washington, said in a telephone interview. “And we undermine our own veracity by citing issues like sovereignty, when we have our hands right in the middle of it.”

United States officials are directly advising Iraq on a host of issues, from electricity to education. But they have avoided the limelight when questions turn to how Iraq should manage its oil endowment, insisting that a decision must rest with the Iraqi government.

The State Department advisers on the Western contracts say they purposely avoid trying to shape Iraqi policy.

“They have not negotiated with the international oil companies since the 1970s,” said the senior State Department official, who was speaking about Iraqi oil officials and who is directly involved in shaping United States energy policy in Iraq.

The advice on the drafting of the contracts was not binding, he said, and sometimes the ministry chose to ignore it. “The ministry did not have to take our advice,” he said, adding that the Iraqis had also turned to the Norwegian government for counsel. “It has been their sole decision.”

The advisers say they were not involved in advancing the oil companies’ interests, but rather treated the Oil Ministry as a client, the State Department official said. “I do not see this as a conflict of interest,” he said. A potential area of criticism, however, is that only Western companies got the bigger oil contracts. In particular, Russian companies that have experience in Iraq and had sought development contracts are still waiting.

Earlier in the occupation of Iraq, American advisers supported the Oil Ministry’s effort to dismiss claims by the Russian company Lukoil to a large Saddam Hussein-era deal. The ministry maintains that the Hussein government canceled the contract three months before the invasion. Lukoil says the attempt to cancel the deal was illegal because Mr. Hussein had not appealed to international arbitration first, as required in the contract terms.

The new oil contracts have also become a significant political issue in the United States.

Three Democratic senators, led by Charles E. Schumer of New York, sent a letter to the State Department last week asking that the deals be delayed until after the Iraqi Parliament passes a hydrocarbons law outlining the distribution of oil revenues and regulatory matters. They contend the contracts could deepen political tensions in Iraq and endanger American soldiers.

Criticism like that has prompted objections by the Bush administration and the secretary of state, Condoleezza Rice, who say the deals are purely commercial matters. Ms. Rice, speaking on Fox News this month, said: “The United States government has stayed out of the matter of awarding the Iraq oil contracts. It’s a private sector matter.”

Advisers from the State, Commerce, Energy and Interior Departments are assigned to work with the Iraqi Oil Ministry, according to the senior diplomat. In addition, the United States Agency for International Development has a contract for Management Systems International, a Washington consulting firm, to advise the oil and other ministries. The agency’s program is called Tatweer, the Arabic word for development.

“The legal department of the Ministry of Oil passed us a draft of the contract,” Samir Abid, a Canadian of Iraqi origin who is an employee of the Tatweer program, said in a telephone interview. “They passed it to us and asked for our comments because we were mentoring them.”

He added: “It was an exercise in deciding how best to do these contracts. I don’t know if they used our comments or not.”

In a statement, the agency said its advisers had reviewed the oil company contracts, known as technical support agreements: “At the request of the Ministry of Oil, the Tatweer Energy Team has done a review of the format, structure and clarity of language of blank draft contracts.”

The statement said the team did not have access to confidential information from the oil companies.

Consultants said the advice was necessary because the Oil Ministry, like other sectors of the Iraqi government, has experienced an exodus of qualified employees and lacks lawyers schooled in drawing up contracts.

A supervisor with the Tatweer program, who was not authorized to speak publicly and declined to be quoted by name, said that ministry officials, many of them near retirement, needed help.

The American government lawyers provided specific advice, the State Department official said, like: “These are the clauses you may want. You will need a clause on arbitration. You will need this clause to make this work.”