- The Washington Times - Sunday, November 10, 2002

From an "energy summit" in Houston to the United Nations in New York, Russians have been seeking regime change protection for their oil concessions granted by Saddam Hussein.
British Prime Minister Tony Blair assured Russian President Vladimir Putin during Mr. Blair's visit to Moscow that there is sensitivity toward Russia's post-sanction energy stakes in Iraq. And it is universally assumed that a least two or perhaps three of the five Security Council members are potential producers of Iraqi oil once the United Sanctions are removed.
Should Russia's, France's and China's positioning for oil in the regime of Saddam be recognized after he and his government no longer prevail? Is there a precedent here that supports deployment of a natural resource concentration (oil and gas) to be used as a weapon of international politics and diplomacy, which Baghdad is currently doing, to divert members of the international community from U.N. obligations into narrow, economic self-interest?
The first-line defense of Iraq is its petroleum concessions to Russia, France and possibly China.
A Russian company, Lukoil, has a concession to spend $4 billion to develop a "super" oil field in southern Iraq with reserves estimated at 15 billion barrels or the equivalent of the recovery from the North Sea. Most important, The cost of drilling one well in these concessions is less than 5 percent of the expense to do the same in Sakhalin Island, Russia's Pacific Ocean petroleum project. Russian oil companies operate in Russian mature oil fields with higher costs as production declines. Lukoil's strategy is to replace and control low-cost oil reserves beyond national boundaries.
Saddam Hussein's strategy is to provide Lukoil and other companies with Iraq oil opportunities so long as they represent foreign interests that call for the end of sanctions and that would promote regime stability as opposed to change.
It's no secret Iraq provides Russia with a strategic and business opportunity. But Iraq's use of oil to influence Moscow and to a lesser extent Paris so far at the United Nations opens the way to another approach to regime change and/or sanctions removal. Political regime-change or disarmament (the removal of sanctions) in Iraq should also include change in the oil regime of Saddam.
Technical evasions of the spirit of U.N. sanctions against international participation in Iraqi petroleum development should not be rewarded. Protocols and agreements that Baghdad signed with Russia, France, and others convinced Saddam he is invulnerable.
No matter the outcome of the U.N. resolutions debate and subsequent tests of Iraq's cooperation with inspections, oil will remain the source of discord between members of the Security Council. And Saddam Hussein will exploit it.
But bilateral deal-making or "blank check" approval of the Saddam concessions regime can be avoided by taking a high-ground approach. It is time to consider international energy participation in Iraq.
An international oil consortium in Iraq could disconnect the revenues from its oil with military activity and programs of weapons of mass destruction. Current oil revenue (from smuggling) should be designated conflict oil in the same way certain African diamonds now are identified and restricted. Moreover, oil concessions granted by Saddam should be considered conflict oil concessions because they were established as future sources of oil revenue for military/weapons purposes.
Finally, revenue from conflict oil smuggling (estimated at $3 billion in 2000) to Saddam and his military and research machine, despite claims of "containment" through sanctions, should be removed as a future source of corruption and funding for a potential opposition made up of Saddam revivalists after regime-change.
International oil participation would replace the Saddam-era concessions. Russia's Lukoil, China's Petrochina, and France's Total-Fina-Elf would have equity shares, along with American, British, Japanese and Norwegian oil companies in the exploration, development and production of new oil in Iraq. A restructured Iraq oil company also would participate as an entity with a carried-interest similar to what the Russian government holds in Lukoil (15 percent).
Companies with Saddam conflict concessions would be offered compensation for development costs (up-front signingbonuses) through a payback position from actual oil production.
The architecture for international participation could resem- ble the Red-Line Agreement of the Iraq Petroleum Co. (IPC) in the period before the Second World War. An international consortium(IPC) was established in 1928 to manage participation in Iraq oil development.
The consortium at that time was dominated by Great Britain, which could decide on non-British company access to oil exploration in Iraq. British imperial influence is now historical: A Red-Line approach today would follow the different equity/investment stakes and voting distribution that participating companies establish as the basis of the consortium. In its postcolonial form, a Red-Line Agreement adaptation to oil-regime change in Iraq would involve only new exploration and production. It would prevent competition over the concessions from Saddam as the original restrained foreign oil companies (and their home governments behind them). There would no foreign "scramble" for Iraqi oil concessions which could destabilize a post-Saddam government.
Oil companies within the consortium would pay taxes (transparently) on oil revenue to the post-Saddam government of Iraq. Tax payments would prevent corrupt concession deals.
The prospect of such an international consortium offers current conflict-oil concessionaires open-door access, as opposed to claims based on spheres of interest, to new oil in Iraq. This would not only remove oil as a cause of tensions at the level of the Security Council and bilaterally between Washington-Moscow and Washington-Paris but also advance the demilitarization of oil revenue in Iraq.

Daniel I. Fine is a research associate at the Massachusetts Institute of Technology.

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