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StatoilHydro and Norway’s Iraq Policy

By Reidar Visser (www.historiae.org)

[English translation of an op-ed originally published in Norwegian in Dagens Næringsliv, Oslo, 7 July 2009]

On 30 June 2009, StatoilHydro participated in the first licensing round for the Iraqi oil sector. No contract materialised after the bidding but StatoilHydro has expressed a continued interest in doing business in Iraq. The whole episode raises fundamental questions about the Iraq policy of Norway’s government, which owns the majority of shares in StatoilHydro.

The fact that StatoilHydro was present in Baghdad for the first licensing round reflects a radical change of the company’s approach to Iraq over the past few years. Back in 2007, Statoil was on the verge of establishing an office in the federal region of Kurdistan. Even though the intention was to cover all of Iraq, Iraqi politicians almost universally saw the plans as a special gesture to the Kurds. The backdrop was a situation in which fundamental questions about Iraq’s political system remained unresolved, and the conflict between the central government and the Kurds in particular was becoming more pronounced.

Today things look very different. This time, StatoilHydro wants to secure a contract with the central government. The constitutional situation in Iraq remains confused and undetermined; this time the Kurds are among those who reject the plans for Iraqi contracts with foreign oil companies.

Is StatoilHydro on firm ground this time around? The answer is “No”. Of course, the central government in Baghdad is a more powerful player than the Kurds. However, it is just as problematic as the Kurds as a prospective partner for a Western oil company. The lack of both a revised constitution as well as a legal framework for the energy sector could make any contract entered into with today’s government just as risky as those deals that smaller Western oil companies (including Norway’s own DNO) have cut with the Kurdish regional government.

Iraqi critics of the first licensing round have added criticism related to the specific package of deals under consideration. Many maintain that in the absence of a legal framework for the energy sector, any contract with a foreign oil company should be submitted to the Iraqi parliament for approval. Some also claim that despite the fact that what is on the table are technical service contracts (considered less profitable to international oil companies than production sharing agreements) the proposed deals may create imbalances in the Iraqi oil sector. The fact that so many of the biggest oil fields are offered to foreign companies at once and for long periods (20 years) is seen as particularly worrisome given the failure of the Iraqi government to re-establish a strong, unified national oil company since 2003. Industry experts reckon that some of the fields in the first licensing round are among Iraq’s crown jewels.

Just like DNO and other smaller companies have become pawns for the Kurds as the Kurdish parties try to maximise their demands in constitutional negotiations with Baghdad, international oil companies interested in deals with the central government now run the risk of becoming pawns for Baghdad in its confrontation with a problematic conglomerate that includes regional interests in the oil-rich Basra in addition to trade unions and other advocates of a strong, national oil company. At the national level, any oil contract between the Iraqi government and foreign companies could turn into a hot topic come the parliamentary elections of 2010; at the local level in Basra (where StatoilHydro was bidding), it makes sense to draw parallels to the situation in Nigeria, where local groups attack companies that have entered into contracts with the central government. At both levels, the criticism could focus on how the IOCs are being used as a tool by the Maliki government – which desperately needs to improve its cash-flow situation prior to the next elections but seems less focused on much-needed long-term planning for the Iraqi oil sector. It would have been a far better alternative to defer these deals until after the 2010 parliamentary elections, or enter into a limited number of bilateral technical-service contracts with the support of the Iraqi parliament. Indeed, the apparent disintegration of the first bidding round (so far only one contract has been awarded) would enable this kind of approach.

StatoilHydro’s plans for Iraq are inextricably linked to Norwegian foreign policy in a wider sense, where the opening up last week of a Norwegian legation in Baghdad constitutes an important parallel. Just like StatoilHydro, the Norwegian foreign ministry has weighed different criteria concerning normalisation with Baghdad, and just like StatoilHydro, the ministry has concluded that the time is right to resume bilateral ties. But with all the remaining fundamental disputes connected with the Maliki administration and the whole system of government adopted by Iraq in a dubious referendum in 2005, it is really hard to make sense of this way of reasoning. Despite the improvements in the security situation, there are still no convincing indications of enduring political progress in Iraq in the shape of constitutional revision and institutional reform. And just like StatoilHydro, the Norwegian foreign ministry will run into trouble because it chooses to wholeheartedly support a regime whose legitimacy is still questioned by many Iraqis. By so doing, Norway loses its ability to maintaining a critical dialogue in which opponents of the regime are included as well.

Norway’s new engagement with Iraq is becoming part of a chaotic post-2003 “reconstruction” project in which the self-interests of external players frequently take priority – often at the expense of the Iraqi reconciliation project itself. If the goal is long-term political stability in the Gulf and the whole Middle East then it would be better if more international players had assumed a critical position on the sidelines and allowed the process towards a revised constitution in Iraq to come to an end in a more neutral environment.

For other articles related to Norway’s role in Iraq, see

Norway’s Oil Industry and the Partition of Iraq
Football, Quotas, and National Reconciliation in Iraq

Is Statoil Getting It Wrong in Iraq?



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