Iraq opened international bidding for eight enormous oil and gas fields Monday, paving the way for major investments in a nation with one of the world's largest petroleum reserves, Reuters reported.
If the contracts are approved, they could lead to the biggest foreign stake in Iraq since the industry was nationalized more than 30 years ago.
That could be good news with the price for a barrel of oil breaching $143 for the first time ever on Monday. But there are concerns that a dominant role for Western firms could feed perceptions that U.S.-led forces toppled Saddam Hussein to grab the country's natural resources.
Those concerns were heightened recently by expectations that Iraq would announce short-term no-bid contracts with five Western oil firms Monday for technical consulting. The New York Times reported about two weeks ago that the firms included Royal Dutch Shell PLC, BP PLC, Exxon Mobil Corp., Chevron and Total.
But Oil Minister Hussain al-Shahristani told a news conference Monday that the Iraqi government was still negotiating with the companies, which he did not identify. He said the firms wanted to participate in oil field production rather than simply provide consultancy services for cash.
The minister said the short-term contracts were meant as a stopgap measure to boost oil production until the government awards longer-term deals next June.
But some believe they could give the Western firms a bidding advantage in that process, which al-Shahristani said Monday would include 35 foreign companies. The firms he named included seven from the U.S., three from Britain and others from countries like Russia and China.
Al-Shahristani said the companies would be invited to bid on the oil fields of Rumeila, Zubair, Qurna West, Maysan, Kirkuk and Bay Hassan; and the natural gas fields of Akkaz and Mansouriyah.
"These fields were chosen because their production can be raised in a short time and at a low cost," said al-Shahristani.
But he made clear that even the longer-term contracts would include cash compensation rather than a share of oil production.
"We don't see a need to allow anyone to share our oil with the people of Iraq," al-Shahristani said.
All of the oil fields the minister mentioned Monday are currently producing crude, and al-Shahristani said the new contracts would raise Iraq's production by 1.5 million barrels per day. Iraq currently produces 2.5 million barrels per day and hopes to raise that to 4.5 million by 2013.
The introduction of an additional 1.5 million barrels of oil each day would likely be enough to move the price for a barrel downward. But some analysts were not convinced, given the deterioration of the Iraq's infrastructure and potential instability, that it is realistic.
"I'm pretty skeptical of that figure," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "Amount is one thing, timing is another. They still need to upgrade their infrastructure and while things have stabilized, I think you're assuming a best-case scenario on security and other issues."
Iraq has been able to boost production to its highest level since the U.S.-led invasion in 2003 because of a reduction in violence.
But al-Shahristani said the country needs help from foreign firms to boost production further because some of its oil fields "suffer from old age and need modern technology to check their deterioration."
Iraq nationalized its oil industry in the 1960s, and participation by foreign firms since then in the development of the country's natural resources has been limited.
With fuel prices at record levels, foreign firms have been anxious to tap Iraq's estimated 115 billion barrels of oil reserves and 112 trillion cubic feet of natural gas. The revenue would help the Iraqi government rebuild infrastructure and deliver services to its people.
The deadline for the oil and gas bids announced Monday is the end of March, and preliminary contracts will be signed next June. Every company involved in the bidding process must have an Iraqi partner and must give at least 25 percent of the value of the contract to Iraqi companies, said al-Shahristani.
The process of awarding contracts to help develop Iraq's oil industry has been delayed by the inability to finalize a new a law on how to divide the country's oil resources. Negotiations over the law have been stalled by political squabbles between the central government and the Kurds.
The Kurdish regional administration in northern Iraq has signed more than 20 oil deals with foreign firms to work in Kurdish-controlled fields since it drafted its own oil and gas law in August 2007.
The Shiite-led Iraqi central government says the deals are invalid with no national oil law in place.
Several Democratic senators in the U.S. recently asked the Bush administration to block the Iraqi government's reported no-bid deals with Western firms until the country finalized the oil law, but the White House refused.
On Monday, Senator Chuck Schumer, a Democrat from New York, called for an independent audit of the risks those contracts could pose to political progress in Iraq if they are signed without an agreement on how to divide the nation's oil revenues.
"Signing these deals without a revenue-sharing law is like putting the cart before the horse," Schumer said.
But Iraqi government spokesman Ali al-Dabbagh said Monday the country had never considered a no-bid process, saying "there was never any intention to award the contracts without a tender."
He also denied American influence on the Iraqi government's oil decisions, saying "politics does not come into this."
"There is no preferential treatment for anyone, no matter who," said al-Dabbagh.
Major oil companies also distanced themselves from talk of no-bid deals.
"We have been providing services to Iraq from outside the country for a number of years," said Robert Wine, a spokesman for BP. "We submitted a study of the Rumeila fields several years ago and if the discussions do lead to deal, they will focus on the technical services in that report. We need to clarify - this is not about access to the country's oil resources, or exploration. It's a management contract, to provide technical resources."
On Monday, the Times reported that a small U.S. State Department team helped draw up contracts between the Iraqi Oil Ministry and the five major oil companies reportedly getting no-bid contracts.
State Department spokesman Tom Casey confirmed a small number of U.S. advisers were providing "technical support" to the Iraqi Oil Ministry. But he said "they are not there to try and give the Iraqis any kind of specific requests or to make decisions or to even push in an individual direction."
Casey said the decision by the Iraqis not to announce contracts for several Western firms Monday was their own and not influenced by Washington.