As Regime Crumbles, Battle for Oil Begins

April 11, 2003

From Washington to Ankara, all eyes were on Kirkuk, the dusty little Iraqi city that fell to Kurdish forces yesterday. Or rather, all eyes were on what lies beneath the ground. The Kirkuk oil fields to the north of the town are among the most valuable in Iraq, containing some 40 per cent of the country's reserves.

The US vice-president, Dick Cheney, predicted on Wednesday that Iraqi oil production could be back up to pre-war levels of 2.5 million barrels a day as soon as the end of the year, with a little help from foreign advisers and engineers. He was at pains to stress: "It's their oil; it's their resources." An interim oil industry authority "will be composed primarily of Iraqis [with] international advisers from outside".

Those inclined to suspect an American conspiracy have pointed out that a unit of Halliburton, the energy corporation formerly headed by Mr Cheney, landed a £600 million contract last month for initial repairs to the oil fields. Congressional Democrats have called for an investigation of the contract, awarded without competition.

An American oilman, Phillip J Carroll, is reportedly among the leading candidates to be chief adviser to the Iraqi oil industry. He is a former head of Shell's US subsidiary. Such a US-led approach troubles some oil analysts. Iraq's oil revenues are still governed by pre-war United Nations sanctions that only the Security Council can lift.

However, two veto-wielding members of the Security Council, Russia and China, must first be consulted - or bought off - over multi-billion-pound contracts they hold to develop some of Iraq's richest oil fields. Russia's biggest oil firm, Lukoil, and two smaller companies signed a deal to tap a huge field near Basra, though Saddam angrily voided the deal last December. Lukoil this week threatened to seek injunctions to seize any tankers trying to ship Iraqi oil out of the country - unless a new Iraqi government offered £2 billion in compensation.

Two Chinese oil firms have a deal to develop the al-Ahdab field in central Iraq. France has said Iraq's oil should remain under UN control. But the US could, in theory, avoid another bruising UN fight by proclaiming a unilateral right to sell Iraq's oil as a military occupying power.

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