Last week, ExxonMobil became the first U.S. oil company in 35 years to sign an oil-production contract with the government of Iraq.
As I write, several other contracts with the world’s largest oil companies are being finalized, and more are expected when a new negotiating round kicks off in Baghdad on Dec. 11.
Do these contracts represent a "victory" for Big Oil in Iraq? Yes, but not one as big as the companies had hoped for (at least, not yet).
Before the United States and Britain invaded Iraq in March 2003, their oil companies were shut out of oil-production contracts being negotiated by the government of Saddam Hussein. Today, more than six years of war later, Saddam is gone, and the U.S. and British oil companies are not only in on the oil contracts, they have managed to sweeten the terms.
However, organized resistance by Iraqis and people around the world has thus far succeeded in denying Big Oil its Big Prize: passage of the Iraq Oil Law, alternatively called Iraq Hydrocarbons Law, which would grant far greater control over Iraqi oil to foreign companies on terms much less favorable to Iraq than the current contracts provide.
If the negotiations proceed on their current path, foreign companies will produce the vast majority of Iraq’s oil. How much control they will exert, and who will reap the greatest benefits (and endure the steepest costs) is yet to be determined.
Before the Invasion
In January 2000, 10 days into President George W. Bush’s first term, representatives of the largest oil and energy companies joined the new administration to form the Cheney Energy Task Force. As part of its deliberations, the task force reviewed a series of lists titled "Foreign Suitors for Iraqi Oilfield Contracts"  naming more than 60 companies from some 30 countries with contracts in various stages of negotiation.
None of contracts were with American nor major British companies, and none could take effect while the U.N. Security Council sanctions against Iraq remained in place. Three countries held the largest contracts: China, Russia and France -- all members of the Security Council and all in a position to advocate for the end of sanctions.
Were Saddam to remain in power and the sanctions to be removed, these contracts would take effect, and the U.S. and its closest ally would be shut out of Iraq’s great oil bonanza.
After the Invasion
The invasion of Iraq dealt handily with the problem of U.S. and British exclusion. ExxonMobil, Chevron, BP, ConocoPhillips and other major oil companies met with the Iraqi government on countless occasions, and the Iraqis tried to make deals.
But the oil companies, backed aggressively by the Bush administration, steadfastly insisted that contracts would only be signed after the Iraq Oil Law  was passed. They nearly prevailed on several occasions, but organized resistance in and outside of Iraq has continually stymied the law’s passage.
Several forces have conspired to bring the oil companies to the negotiating table today.
Most recently and significantly, Iraq’s Parliament has refused to even consider the law until after the January 2010 elections. It is quite likely that a new government hostile to the interests of foreign (particularly U.S. and British) oil companies could come to power in those elections, making passage of the law much less likely. The deals being offered today would be the best the companies would be likely to get.
President Barack Obama and his administration have been vocal and active proponents of the law’s passage. However, this administration’s allegiance to the oil industry is not as steadfast as that of its predecessor.
The Obama administration’s push for passage of the law comes at the same time that it pursues withdrawal of all but a residual U.S. troop presence. It is hard to underestimate the added negotiating weight brought by 150,000 members of the U.S. (and until very recently British) military. Bush announced his most public declaration for passage of the Iraq Oil Law at the same time that he announced the surge of an additional 20,000 U.S. troops into Iraq. The pending loss of its most potent negotiating stick has clearly made the oil companies’ more willing to deal.
Secretary of State Hillary Rodham Clinton may have best put forward the administration’s position at the U.S.-Iraq Business and Investment Conference on Oct. 20, explaining: "A comprehensive hydrocarbon law is vital for regulating the [Iraq] oil sector. Parliament has delayed this vote until after January, but steps can be taken in the interim; for example, by holding transparent, credible auctions on oil and gas fields as we are seeing ..."
In other words, 'we know you want the law, but Parliament isn’t biting, and we’re not keeping 150,000 U.S. soldiers in Iraq indefinitely for you to get it. So, sign the d*** contracts.'
And finally, under immense pressure, the Iraqi Oil Ministry also has steadily been sweetening the deals.
The New Oil Contracts
The Iraq Oil Ministry began a bidding round in June for eight currently producing oil fields, which are among the largest in the world. Only one consortium -- BP and the Chinese National Petroleum Corp. -- agreed to the terms. The rest of the companies balked, saying the terms just simply were not generous enough. The terms have since been sweetened (and applied retroactively to BP and CNPC's deal), and the companies are now jumping on board.
Because the U.S. and British companies have, to a large degree, squeezed into pre-existing negotiations, some strange bedfellows have emerged to sign these new contracts, and more odd pairings are expected soon.
- BP and CNPC finalized the first new oil contract issued by Baghdad for the largest oil field in the country, the 17 billion barrel Rumaila field.
- ExxonMobil, with junior partner Royal Dutch Shell, won a bidding war against Russia’s Lukoil and junior partner ConocoPhillips for the 8.7 billion barrel West Qurna Phase 1 project.
- Italy's Eni SpA, with California’s Occidental Petroleum and the Korea Gas Corp., was awarded Iraq's Zubair oil field with estimated reserves of 4.4 billion barrels.
- Japan's Nippon Corp., leading a consortium of Japanese companies including Inpex Corp. and JGC Corp., is at an advanced stage in talks to win the Nassiriyah oil field.
- Shell, with partners CNPC and the Turkish Petroleum Corp., is also in discussions for the giant Kirkuk oil field, although negotiations have been delayed until after Iraq’s January elections.
These contracts are complex and unique, representing a hybrid of existing models. They are not the best that the oil companies hoped for, which would have been production sharing agreements (PSAs). Nor are they the worst the companies might have feared; Iraq is not maintaining its nationalized system, closed to foreign oil company production participation (U.S. and other foreign oil companies sell Iraqi oil now and have done so for decades).
They are also not technical service contracts (TSCs), although this is what the Iraqi Oil Ministry has named them (likely in an attempt to thwart opposition to the contracts for offering too much to foreign oil companies). Greg Muttitt, an Iraq oil expert with Platform , told me, "TSCs generally last just a few years, they're generally for a specific job (e.g. installing pumps) rather than managing a field, and they go to service companies like Baker Hughes and Halliburton."
On the positive side for the companies, where the development production contracts (DPC) that Iraq was signing prior to the 2003 invasion offered 12-year contracts, today’s run for 20 to 25 years. And while as recently as a year ago the Iraqis offered the foreign companies a 50 percent ownership stake, today’s contracts offer them a 75 percent stake (25 percent for the Iraqi government).
On the other hand, where the PSAs sought under the Iraq Oil Law would give the companies an equity stake and the ability to book the oil in the fields as their own, these contracts provide reimbursement fees for capital and operational expenses and a fixed fee per barrel of oil produced and deny the companies the ability to book reserves.
It remains unclear whether the foreign companies or the Iraqi government ultimately has production decision-making authority. And some of the benefits included in the contracts would be annulled if the Iraq Oil Law were passed, including requirements to hire and train Iraqi workers and the transfer of needed technology.
Finally, the Iraqis apparently sweetened the deals  further in the last few weeks by reducing the amount the foreign companies pay in taxes and allowing them to use private security forces to protect their facilities.
The Next Bidding Round
On Dec. 11 and 12, the second, much larger, bidding round will be launched in Baghdad. Forty-four international companies have been prequalified to bid on run for 11 groups of oil and gas fields in already producing and undiscovered fields. Negotiations will include the super giant Majnoon field, which Chevron and France’s Total have teamed up to bid for.
The contracts for these fields are expected to mirror those described above, but no "model contract" has been made publicly available.
The Iraq Oil Law has remained an elusive goal of the world’s most powerful industry and governments because a massive organized global resistance movement has been shining a bright spotlight on its content, its backers, and on the consequences of its passage.
We must continue to shine this spotlight on the new contract negotiations to help ensure that 1) the military occupation of Iraq will be able to conclude, and 2) that the Iraqis are not freed from a foreign military occupation only to be brought under foreign economic control.
(What these contract negotiations mean for the continued U.S. occupation of Iraq is the topic of my upcoming article for Political Research Associates .)