Wednesday, February 11, 2009

Post-Hussein Oil

Despite the recession and stock declines last September, Exxon Mobil has earned the highest profits in world history in 2008 - a record $45.2 billion. In assets, Exxon is worth around $375 billion which is more than General Electric, Bank of America and Google combined. It's the world's largest corporation.

The size and asset value of a corporation alone does not tell you very much about conduct, only performance and market structure. The real ambitions of the oil industry as a whole, however, are not very secret. With its political and business clout, Exxon has been urging the Oil Ministry of Iraq to issue it the first contracts for oil field service in Iraq since the US-led invasion in 2003. New York Times, June 2008:

"[The International Energy Agency] estimated that repair work on existing fields could bring Iraq’s output up to roughly four million barrels per day within several years. After new fields are tapped, Iraq is expected to reach a plateau of about six million barrels per day, Mr. Fyfe said, which could suppress current world oil prices."

These no-bid contracts were supposed to be awarded to Exxon, BP, Shell, Chevron and Total, as well as some smaller ones like Hunt Oil Company from Dallas. A total of 46 leading companies from China, India and Russia, had memorandums with the Oil Ministry, but were not awarded contracts. Continued:

“These are not actually service contracts,” Ms. Benali said. “They were designed to circumvent the legislative stalemate” and bring Western companies with experience managing large projects into Iraq before the passage of the oil law.

By legally increasing the oil production in Iraq, these contracts circumvented OPEC rulings on member-state oil output. In fact, the increase in oil output from Iraq in the contracts is by the same amount OPEC decided to decrease output: 2.9 million barrels a day.

By severing Iraq from OPEC, the oil industry can now increase output and earn more profits, while pleasing U.S. politicians with a lower price for oil.

The no-bid contracts were eventually canceled by the Iraq Oil Ministry since June. Instead they will be competitive bids, which Exxon and the others are surely to win, being the most eligible and capable of bidding on them. They will soon bid on long-term service contracts for 90 percent of the oil fields in Iraq. The United Press International says Shell has already won a contract to control most of the Shiite oil in Southern Iraq for 25 years.

All of these corporations have a history of manipulating politically unstable markets in order to gain control. For example, after a dispute with the Venezuelan government, during which Exxon persuaded a British court to briefly freeze $12 billion in government assets to fight what it considered an expropriation, the Venezuela's oil minister accused the company of "judicial terrorism."

The contracts are structured as "service" contracts, which means the companies will repair fields, drill, export oil and train Iraqis to work in the fields. This means, essentially, hiring Iraqi labor instead of bringing in workers from further East. These are "reconstruction" contracts. The companies will be paid for their work, rather than offered a license to the oil deposits. As such, they do not require the passage of an oil law setting out terms for competitive bidding. Since the summer this legislation has been stalled by disputes among Shiite, Sunni and Kurdish parties over revenue.

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