Contracts Awarded to Russian, Norwegian Firms on Last Day of Iraq Oil Auction

Russia's Lukoil and Norway's Statoil won a joint contract to develop a major untapped oil field in southern Iraq, Saturday, on the second and final day of a two-day auction aimed at boosting Iraq's oil output. Representatives from dozens of foreign oil companies attended the auction, despite security risks.

Representatives of the consortium led by Russia are seen during the second round of bids for oil licenses to develop some of Iraq's massive oil fields, at a meeting in Baghdad, 12 Dec 2009 

The Iraqi government expressed satisfaction with the outcome of major two-day oil auction, Saturday after awarding the prized West Qurna Phase Two oil field to both Russia's Lukoil and Norway's Statoil.

The winning bid by the two companies proposed to give Iraq a fee of $1.15 per barrel of crude extracted from the field. The companies also pledged to reach an output of 1.8 million barrels per day.

Friday, Iraq awarded contracts to exploit the Majnoon oil field to Royal Dutch Shell and Malaysia's Petronas, while granting another major contract to China's CNPC.

Oil Minister Hussein al-Shahristani declared that the results of the auction were "a victory," adding that Iraq would not waste the money from the oil deals "on wars," as former president Saddam Hussein "used to [do]." The money, he emphasized, will "go to the Iraqi people."

Shahristani also told Iraqi politicians that were opposed to the deals that commercial accords, such as the oil deals, were under the control of the government and did not need the approval of parliament.

He says that the constitution is clear that international accords and treaties signed by Iraq and any foreign country must go through parliament for approval, but that commercial agreements don't need to be legally approved by parliament, according to the Iraqi constitution, no matter how large the contract, or how long the duration.

Sunni opposition parties have criticized Prime Minister Nouri al-Maliki for going ahead with the deals, complaining that he was "giving away Iraq's natural resources."

Former oil minister Issam al-Jalabi insisted that the government was not following proper procedures and needs to submit the deals to parliament for approval.

He says that the government cannot just pick and choose which oil laws it wishes to follow. He insists that a 1967 law stipulates that a bill must go through parliament for each and every accord. Otherwise, he says, the agreements will be considered null and void.

Louis Hobeika, professor of economics at Lebanon's Notre Dame University, said that he's not sure if the Iraqi government should have gone ahead with the deals, given the unsettled political situation in the country.

"We all know that the Iraqi government and Iraqi institutions are weak and any contracts given under these circumstances, especially long-term contracts, for me is doubtful, and therefore, all of these contracts, especially long term contracts, are bad for Iraq. It will not be in the Iraqi's interest, it will be in the foreign firm's interest," he explained.

The oil deals will increase Iraq's production, according to government estimates, by over 4.7 million barrels per day in the coming years. Iraq now produces 2.5 million barrels per day. Many analysts, however, question if Iraq will be able to attain such lofty production levels.