Iraq to announce U.S. oil contracts

Michael O'Hanlon

TEXT OF INTERVIEW

Bob Moon: American taxpayers just paid another installment for the long and costly wars in Iraq and Afghanistan.

President Bush signed legislation today that funds the operations for the remainder of his term in office and beyond that. The latest package authorizes $162 billion for the next fiscal year.

The President praised Congress for coming to a bipartisan agreement that doesn't tie the hands of military commanders.

President Bush: We owe these brave Americans our gratitude, we owe them our unflinching support and the best way to demonstrate that support is to give them the resources they need to do their jobs and to prevail.

Congressional authorizations for the five-year-long U.S. military operation in Iraq now total $650 billion. Operations in Afghanistan add close to another $200 billion.

We mentioned the price of oil topped $143 a barrel for the first time ever today. At the same time, Iraqi officials opened the bidding for eight huge oil and gas fields, but they held off announcing formal service contracts for construction of infrastructure improvements.

It's estimated the additional fields could raise Iraq's oil production by 1.5 million barrels per day. Right now, the country produces around 2.5 million barrels a day.

Mike O'Hanlon is a senior fellow in foreign policy at the Brookings Institute and he's the author of their Iraq index.

Mr. O'Hanlon, thanks for joining us.

Mike O'Hanlon: My pleasure.

Moon: Iraq is opening the bids but isn't rushing to sign the contracts with U.S. oil companies just yet because it's such a political sore point over there, I take it. What do these contracts give the U.S. companies? Do they give them
control, for example?

O'Hanlon: I don't think that they give them control. I don't think, actually, that it's going to prove to be huge sore point within Iraq itself; I think it actually may be a bigger problem in the region. Many Iraqi politicians at this point are first of all angry at companies that dealt closely with Saddam Hussein and have no great interest in honoring contracts signed by him and secondly, realize that their only major international partner at this point is the United States. And so they certainly understand that we Americans haven't done a lot of things right, but nonetheless, they see us as their main viable partner.

Moon: So what are these contracts going to cover?

O'Hanlon: They're going to cover a certain limited amount of oil exploration and development. We're not looking at contracts of indefinite duration. That's not to say this is a good idea to publicize this the way it's been done in the last few days. This is a big public image problem and I frankly wish that even if it had not been appropriate that there had been some effort to bring in one or two foreign companies, because frankly, the perceptual benefit would have outweighed the economic loss to the United States of having to share a little bit of this fairly modestly-sized contract.

Moon: They're just going to be repairing the oil fields, doing infrastructure work. Is that the case?

O'Hanlon: That's my understanding as well. So again, it's a limited contract, it doesn't cover the majority by any means of Iraq's future oil wealth or development, but these are nonetheless big contacts in raw dollar value terms and they are big in the public eye because they are the main ones happening this summer.

Moon: Do they hope to get something more out of this in the long term?

O'Hanlon: I think clearly any company that's investing in Iraq today is doing so in the hope of doing better in the future than they would in the short term, Iraq is a very difficult place to operate. So I don't mean in any way to impugn the motives of the companies doing this. I think that they are accepting some risk, financially and otherwise, which is probably in the scheme of things in many ways admirable. Unfortunately, the perception is inevitably going to be of America taking the oil that many people thought we went to Iraq for in the first place. That's not accurate, but it's going to happen.

Moon: How big of a job is it going to be getting the Iraqi oil fields into shape. What's the state of the fields right now?

O'Hanlon: By all accounts from professionals, the state of the fields is quite poor. I haven't heard anyone challenge the basic contention that Saddam misused these fields for 30 years. I'm not even sure they were in great shape before that. So I think you have to look at this as a 10-20 year development process. In terms of the security environment in Iraq, it's becoming conceivable to think in terms of projections based on schedules for construction and drilling because the security environment has improved enough that sometimes those schedules more or less hold. We're finally starting to see the numbers on production creep up and we've seen the numbers of attacks on oil infrastructure go way down. So there is at least some hope that over a period of 2-5 years, you'll see a substantial improvement in Iraqi oil production.

Moon: But still a very iffy proposition over there. Mike O'Hanlon is a senior fellow at the Brookings Institute. Thanks for joining us.

O'Hanlon: Thank you.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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