Results of Iraqi Oil Rights Auction Show No U.S. Favoritism
So much for conspiracy theories. A number of people have opined that the U.S.-led invasion of Iraq was a cynical grab for oil, armed robbery on a national scale to secure access to Iraq’s enormous oil reserves. Based on the results of two rounds of auctions for the opportunity to develop Iraq’s oil fields, that was not the case—or the U.S. has been profoundly inept in taking advantage of Iraq.
In the first round, only one U.S. firm, Exxon Mobil, inked a significant deal, to develop the rich West Qurna field in partnership with Royal Dutch Shell. In the recently completed second round of auctions, no U.S. firms won development rights. Instead, as reported by Reuters Sunday, foreign firms, including especially Russian and Chinese oil companies, took pride of place, snatching up the best and potentially most lucrative deals. Iraqi oil officials hailed the results, saying it shows that their government is “fully free from outside influence.” Not content with touting his nation’s independence, an Iraqi spokesman went on the slander the country that’s spending blood and treasure to secure Iraqi security: “No one, even the United States, can steal the oil, whatever people think.”
Of course, the U.S. oil company shutout appears to have been mostly self-made: only one U.S. firm even bothered bidding in the second round. The reason is, despite the richness of Iraq’s oil reserves, Iraqi oil development is not a very attractive proposition:
• The rates, and therefore return on investment, offered by Iraq are low.
• The country still faces significant political and security issues, making investments very risky; as one U.S. oil executive said, “The bids are based on very ambitious assumptions in terms of stability”—assumptions that may not be realistic.
That’s why foreign state-owned companies, such as those from China and Angola, which do not need to show a profit and which are used to operating in riskier and less stable environments, were among the foremost bidders.
The results of the auctions will cheer those who hoped that the U.S. was not invading another nation to steal its oil—and disappoint any Americans hoping we might see lower gasoline and heating oil prices as a result of taking on nation building in Iraq.