Expectations that foreign companies will cash in on Iraqi oil riches were called into question on Friday night after a key parliamentary body in Baghdad pledged to “push Shell out” and halt a forthcoming licensing round.
The warning from Jabir Khalifa Jabir, secretary of the Iraqi parliament’s oil and gas committee, was seen by financial analysts as a serious threat to western investment opportunities in a country that holds the second-largest oil reserves in the world.
Shell has been considered a frontrunner in the race to seize control of the Iraqi energy sector after signing a US$4 billion deal to process and market gas from the south of the country and ship it, possibly to Britain as liquefied natural gas (LNG).
But the preliminary agreement — and a subsequent one with China National Petroleum Corp (中石油集團) — were unconstitutional and detrimental to Iraq’s economic interests, said Jabir, who worked for more than 15 years at Iraq’s state-run Southern Gas Co.
“We are going to do everything we can to revoke this deal and to push Shell out,” Jabir told Reuters.
“Both these deals are illegal because they didn’t go through parliament. The companies and their lawyers knew the old Iraqi oil law very well,” he added, saying that any new deals Baghdad signs in bidding rounds under way with BP and others would also be subject to revocation.
The oil ministry has said it does not need parliament’s approval to sign new deals, but Jabir argues Iraqi law 97 clearly states all arrangements of this nature must be passed by parliament. The committee had studied the preliminary Shell deal for the past six months and all members have concluded that it is illegal, he said.
The arrangement with Shell and the wider oil licensing round have been highly controversial already because many critics believed they were unduly influenced by the US and British, who occupied the country after toppling then Iraqi president Saddam Hussein in 2003. Critics saw the invasion as a “war for oil” and believed it would open the way for US and UK oil companies to regain assets seized from them decades earlier through nationalization.
Analysts at IHS Global Insight, the economic forecasting group, said the latest developments were alarming, especially s Shell was expected to formalize its southern gas deal within the next few weeks.
“The Shell deal looks increasingly like a litmus test for progress on all Iraq’s oil and gas projects, with any potential failure likely to remove most of the political legitimacy from the oil ministry’s interpretation of Iraq’s constitution and oil law,” they said.