Letter to Condoleezza Rice, Secretary of State, Re: Stop Big Oil's No-Bid Contracts in Iraq Until Central Government Adopts Revenue Sharing Agreement

Letter

Schumer, Kerry, & McCaskill Seek to Block Big Oil's No-Bid Contracts in Iraq Until Central Government Adopts Revenue Sharing Agreement

U.S. Senators Charles E. Schumer (D-NY), John Kerry (D-MA) and Claire McCaskill (D-MO) demanded today that the Bush administration stop the Iraqi government from awarding no-bid contracts to four of the world's biggest oil companies until the country's parliament passes a national oil law and revenue-sharing agreement. The senators said that if the technical servicing agreements, which could be announced as soon as June 30, are allowed to go forward, it could inflame sectarian unrest in Iraq. They also expressed worry that the rush to reward major Western oil companies would fan the perception that U.S. involvement in there was motivated by oil.

The senators released a letter they sent to Secretary of State Condoleezza Rice denouncing the companies' rush to sign so-called "technical servicing agreements" that would enrich Exxon Mobil, Shell, Total and BP. The senators said the oil companies ought to continue providing advice and support to Iraq on oil exploration on a pro bona basis, as they have done in the past, until the government passes a law formalizing the contracting and revenue-sharing process.

"The last thing Iraq needs is further impetus for the three factions to fight over billions in oil revenues, as American troops are caught in the crossfire.We must pressure the Iraqi Government to put all its ducks in a row before entering into contracts with oil companies," Schumer said.

"Sustainable stability in Iraq should be the top priority, not no bid contracts for Big Oil. You'll never have a political solution in Iraq if Iraqi politicians keep stalling instead of passing a fair oil law that equitably distributes revenues among Sunnis, Shiites, and Kurds. If the Iraqi government insists on first extending no-bid oil contracts to the big oil companies, political tensions in the region could be ratcheted up to even more dangerous levels. The timing of these contracts has cost us leverage we need to push through the oil laws and runs the real risk of inflaming sectarian tensions. It's not in our security interests for anyone to think that the same Western oil companies which quietly advised the Iraqi oil ministry were given an insider's advantage on deals that could result in much more lucrative long-term contracts," Kerry said.

"It's bad enough that we have no-bid contracts being awarded for work in Iraq. It's bad enough that the big oil companies continue to receive government handouts while they post record breaking profits. But now the most profitable companies in the universe - America's biggest oil companies - stand to reap the rewards of this no-bid contract on top of it all," McCaskill said. "It doesn't take a rocket scientist to connect these dots - big oil is running Washington and now they're running Baghdad. There is no reason under the sun not to halt these agreements until we get revenue sharing in place," McCaskill said.

It is uncommon for oil companies to receive no-bid contracts of this type. It is especially unusual in this case since more than 40 companies were seeking the servicing deal that Iraq is prepared to give to the four companies. Iraq's central government has defended the award process, saying Exxon Mobil, Shell, Total and BP have provided free advice and support over the past two years, enabling the companies and the government to build a close relationship.

Though the servicing agreements would not come with any ownership of the oil that the companies may help extract, experts say the pacts would put the companies "first in line" to receive the lucrative production contracts that Iraq will eventually award. The senators said those profit motivations do not supplant the need for the country to pass am oil law, which is one of the Bush administration's own "benchmarks for reconciliation."

At a Senate Judiciary Committee hearing last month, Schumer pressed oil executives to put the deals on hold until the government struck a compromise on an oil law and revenue-sharing agreement. The companies balked. "I'm not going to make any commitment of that type," Stephen Simon, Exxon's senior vice president, said in response to Schumer.

A copy of the senators' letter to Rice appears below.

June 23, 2008

The Honorable Condoleezza Rice
Secretary of State
2201 C Street NW
Washington, DC 20520

Dear Secretary Rice:
We write to express our concern that the Government of Iraq (GOI) is about to sign no-bid oil and gas contracts with multinational oil companies, including Exxon Mobil, Shell, Total, Chevron, and BP, to service Iraq's largest hydrocarbon fields before an Iraqi hydrocarbon revenue sharing law has been signed. It is our fear that this action by the Iraqi government could further deepen political tensions in Iraq and put our service members in even great danger. We urge you to persuade the GOI to refrain from signing contracts with multinational oil companies until a hydrocarbon law is in effect in Iraq.

President Bush has stated numerous times the importance of the passage of national hydrocarbon law that would "[g]ive every Iraqi citizen a stake in the country's economy." At this time, the GOI currently does not have in place a revenue sharing law that would fairly allocate any revenue gained from Iraq's lucrative hydrocarbon fields between the three major ethnic groups in Iraq. We fear that any such agreements signed by Iraq's Hydrocarbon Ministry without an equitable revenue sharing agreement in place would simply add more fuel to Iraq's civil war.

Last month, Senator Schumer personally asked Stephen Simon, Exxon's senior vice president, if his company would agree to wait until the GOI produced a fair, equitable, and transparent hydrocarbon revenue sharing law before it signed any long-term agreement with the GOI. He stated unequivocally that they would not wait for any such law to be passed before they signed any agreements for hydrocarbon production. We find it shocking that Exxon would put its own commercial interest above the national security interests of the United States and Iraq.

We are equally troubled by the fact that you recently stated, "[t]he United States Government has stayed absolutely out of the matter of the awarding of Iraqi oil contracts. It's a private sector matter." Without an oil law in place, any formal production contracts with Exxon Mobil et al. threaten to heighten the tension within Iraq between these groups at the same time that American servicemembers are fighting night and day to reduce the levels of violence. This is clearly a matter of national security, which we believe should trump any and all commercial interests.

The GOI maintains that the revenue from its hydrocarbon fields would be used for reconstruction. However, it is not clear what, if any, success the GOI has had in spending its existing hydrocarbon revenues on reconstruction efforts. Nor is it clear that these reconstruction efforts would be targeted equitably to all the major ethnic groups in Iraq. We know that over the course of 2007 and 2008, Iraq will realize roughly $100 billion in oil revenues, most of which will not be spent on reconstruction due to bureaucratic incompetence. And while the GOI argues that the pending contracts are short-term in duration, they will surely pave the way for longer production-sharing agreements between the GOI and these multinational hydrocarbon companies.

The passage of an Iraqi hydrocarbon revenue sharing law is a critical benchmark that would indicate to the American people the Iraqi government's commitment to promoting long-term political and economic stability. It is critical that the administration not lose sight of this important goal and refrain from endorsing actions by the Iraqi government that could further deepen political tension. A fair, equitable, and transparent hydrocarbon revenue sharing law could promote desperately needed political and sectarian reconciliation in Iraq. We ask that you work with the GOI to ensure that they do not sign any agreements relating to oil or gas until they have passed a fair, equitable, and transparent hydrocarbon revenue sharing agreement that benefits the Sunni Arabs, Shia Arabs, Kurds, and all other Iraqi citizens.

Sincerely,

Charles E. Schumer

John Kerry

Claire McCaskill

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