Iraqi Government Fuels 'War for Oil' Theories by Putting Reserves up for Biggest Ever Sale

LONDON - The biggest ever sale of oil assets
will take place today, when the Iraqi government puts 40bn barrels of
recoverable reserves up for offer in London.

BP, Shell and
ExxonMobil are all expected to attend a meeting at the Park Lane Hotel
in Mayfair with the Iraqi oil minister, Hussein al-Shahristani.

Access
is being given to eight fields, representing about 40% of the Middle
Eastern nation's reserves, at a time when the country remains under
occupation by US and British forces.

Two smaller agreements have
already been signed with Shell and the China National Petroleum
Corporation, but today's sale will ignite arguments over whether the
overthrow of Saddam Hussein was a "war for oil" that is now to be
consummated by western multinationals seizing control of strategic
Iraqi reserves.

Al-Shahristani is expected to reveal some kind of
"risk service agreements" that could run for up to 20 years, with
formal offers to be submitted by next spring and agreements signed in
the summer.

Gregg Muttitt, from the UK-based social and
ecological justice group Platform, says he is alarmed that the
government is pushing ahead with its plans without the support of many
in Iraq.

"Most of the terms of what is being offered have not
been disclosed. There are security, political and reputational risks
here for oil companies but none of them will want to see one of their
competitors gain an advantage," he said.

Heinrich Matthee, a
senior Middle East analyst at the specialist risk consultant Control
Risks Group, also believes there are many pitfalls for those
considering whether to make an offer.

"Currently it is unclear
which party in Iraq is authorised to award a contract and at the same
time to deliver its side of the bargain," he said. "Any contract with
an independent oil company will be subjected to opposition and possible
revision after pressure by resource nationalists."

Oil companies
will find their reputations at risk from the actions of their Iraqi
counterparties, such as joint venture partners, suppliers and agents.
They will also have to contend with oil smuggling and the possibility
that the ruling alliance could collapse, Matthee said.

He said
that if the conspiracy theory that western oil companies egged on US
and British governments to invade Iraq were true, the plan could
backfire on them and benefit rivals in Asia instead. "It is possible
the American army has provided the economic stability that will
encourage Malaysian, Chinese and other Asian companies to become
involved," he said.

There is no precedent for proven oil
reserves of this magnitude being offered up for sale, said Muttitt.
"The nearest thing would be the post-Soviet sale of the Kashagan field
[in the Caspian Sea], which had 7bn or 8bn barrels."

China's
state-owned oil group, CNPC, has already agreed a $3bn (PS1.78bn) oil
services contract with the government of Iraq to pump oil from the
Ahdab oil field.

The deal is the first major oil contract with a
foreign firm since the US-led war and was followed up by an agreement
with Shell, potentially worth $4bn, to develop a joint venture with the
South Gas Company in Basra.

This deal has also triggered
controversy. Issam al-Chalabi, Iraq's oil minister between 1987 and
1990, questioned why there had been no competitive tendering for the
gas-gathering contract and claimed it had gone to Shell as the spoils
of war.

"Why choose Shell when you could have chosen
ExxonMobil, Chevron, BG or Gazprom?" he asked. "Shell appears to be
paying $4bn to get hold of assets that in 20 years could be worth
$40bn. Iraq is giving away half its gas wealth and yet this work could
have been done by Iraq itself."

The Baghdad government says it
aims to increase crude oil production from 2.5m barrels a day to 4.5m
by 2013, but faces internal opposition from regional governors and
political opponents.

The sale today comes as oil prices have
plummeted after stockmarket turmoil on Friday. The price of crude fell
by more than $4 at one point to $75 a barrel - the lowest point since
September last year and a sharp drop from its peak of $147 in July.
Opec, the oil producers' cartel, has called an emergency meeting to
agree a cut in output to bolster prices in spite of protestations from
politicians including Gordon Brown. Brown said on Friday: "We've had
some success in getting the price of oil down: the price this morning
is roughly $80, about half what it was a few months ago. I want these
price cuts passed on to the consumer as quickly as possible.

"I'm
concerned when I hear that the Opec countries are meeting, or are about
to meet, to discuss cutting production - in other words, making the
price potentially higher than it should be.

"I'm making it
clear to Opec it would be wrong for the world economy and wrong for
British people who are paying high petrol prices and high fuel prices
to cut production and therefore keep prices high."

A government
source said: "The one chink of light has been the fall in the price of
oil. The last thing we want is to head into a difficult period with a
return to high oil prices. People need to act responsibly."