Hunt for Iraqi Oil

Posted by Cutler on September 17, 2007

At first blush, the announcement of a deal between the Hunt Oil Company and the Kurdistan Regional Government seemed easy to dismiss.

Other small, independent companies like the “tiny” Norwegian oil firm DNO had made similar moves to skirt the central government in Baghdad and court the Kurds.

In the past, such deals have drawn fire from the Iraqi Oil Minister Hussein al-Shahristani and the Hunt deal was no exception.  Shahristani lost no time declaring the Hunt deal “illegal.”

Shahristani’s resistance to autonomous Kurdish oil development also seemed to mirror Bush administration policy.

As I noted in a previous post, Bush himself seemed to rule out Kurdish autonomy back in October 2006.

And the Wall Street Journal (subscription required; third party link) reported that the State Department put cold water on the idea of signing side deals with the Kurds (Neil King Jr., “Hunt Oil, Iraqi Kurds Defend Deal Despite U.S. Concern,” September 11, 2007, A17).

A senior State Department official said the move had taken the U.S. government by surprise. Earlier this year, the official said, the State Department sat down with major U.S. oil companies “to say that it was not a good idea to cut oil deals with the Kurdish regional government.”

The official said that the message “was basically informal” and that the Bush administration had no leverage to block such deals.

And Condoleezza Rice didn’t exactly endorse the deal.

And yet…

If Bush wanted to find “leverage to block” such a deal, he might have found it, in this instance, in the person of his good buddy, Ray L. Hunt.

In his New York Times column, Paul Krugman was quick to point out the depth of the relationship between Hunt and Bush:

Ray L. Hunt, the chief executive and president of Hunt Oil, is a close political ally of Mr. Bush. More than that, Mr. Hunt is a member of the President’s Foreign Intelligence Advisory Board, a key oversight body.

Some commentators have expressed surprise at the fact that a businessman with very close ties to the White House is undermining U.S. policy.

Hunt is also reportedly the key force that initiated negotiations to house the Bush administration library at Southern Methodist University.

The Hunt-Bush relationship certainly makes it more difficult to dismiss the Hunt Oil foray into Kurdistan.

Krugman reaches for the big interpretation:

By putting his money into a deal with the Kurds, despite Baghdad’s disapproval, he’s essentially betting that the Iraqi government — which hasn’t met a single one of the major benchmarks Mr. Bush laid out in January — won’t get its act together. Indeed, he’s effectively betting against the survival of Iraq as a nation in any meaningful sense of the term.

The smart money, then, knows that the surge has failed, that the war is lost, and that Iraq is going the way of Yugoslavia. And I suspect that most people in the Bush administration — maybe even Mr. Bush himself — know this, too.

That would put “partition” question back in play.

I am not so sure.

Does Bush have ties to Hunt?  Sure.  But is Hunt the best Bush can do?  He and Cheney don’t have ties to Big Oil?  Of course they do.  If the “smart money” is on the break-up of Iraq, where are the deals between the oil majors and the Kurdish Regional Government?

I think there is a different game being played here.

The central point of the Hunt affair is not to do the deal with the Kurds but to use the threat of such a deal to leverage concessions from political players in Baghdad who are holding up passage of the national hydrocarbons law.  I first made this argument back in an October 2006 post:

I tend to think that the function of the partition chatter has little to do with real options on the table and much more to do with ongoing negotiations over the Iraqi hydrocarbons law that will govern relations with the oil industry.

The US is firmly committed to centralized national control over the development of new oil fields. In this, they have the support of Sunni Arab political forces along with nationalist Shiite forces in Southern Iraq, including those loyal to Moqtada al-Sadr.

The threat of partition, however, is being used to pressure these Sunni and Shiite forces to embrace particular oil policies that will be very unpopular with Iraqi nationalists, even as they are sought after by international oil majors.

The oil majors and the US are pressing for generous contract terms for foreign oil investment and use the threat of extremely generous regional contract terms on offer in the Kurdish north to extract similar concessions from Iraqi nationalists.

The Associated Press reports, Hunt’s deal with the Kurds would be a “production-sharing contract,” offering the same kind of “generous” terms that the oil majors want from the hydrocarbons law.

The Maliki cabinet agreed in February to sign on in support of the hydrocarbons law.

But Maliki apparently doesn’t yet have the parliamentary votes necessary to move the legislation through parliament.  The latest reports suggest ongoing wrangling.

The Hunt deal isn’t a vote of no confidence in Maliki.  It is a shot across the bow to those who are stalling on the hydrocarbons law but who also fear Kurdish autonomy.

In other words, the Hunt deal is meant to leverage parliamentary votes from the Sadrists and/or the Sunnis.

Both favor centralized control and Sadr is a fierce critic of Kurdish autonomy.

Nevertheless, the Sadrists and the Sunnis have balked at various provisions of the hydrocarbons law, including the idea of production-sharing contracts.

Notwithstanding the specter of the Hunt deal, the Sadrists are, thus far, pushing back.

Perhaps they understand two crucial points:

1) Bush is trying to use his friend Hunt–and the Kurds–to leverage concessions from Iraqi nationalists.

2) Bush is bluffing.

Ironically, it may actually help the White House in these negotiations for Sadrists and Sunnis in Baghdad to think Bush is all about cronyism and corruption–as if he might be just crazy enough to break up Iraq in order to help a friend make a fast buck.  Is that really a hard sell?

We’ll see whether anyone in Iraq buys the story.

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