By Sudha Mahalingam
| The U.S. could install in Baghdad a regime favourable to its interests and get it to annul existing oil contracts on the plea that they were awarded on political considerations. |
FEW OUTSIDE the "coalition of the willing" doubt that the second Gulf War is less about weapons of mass destruction and more about oil. The United States, acutely aware of this global perception, assiduously denies it covets Iraq's abundant energy reserves and says they will be used for the benefit of the Iraqi people and, that too, in conformity with international laws and conventions. These statements, however, are neither here nor there. They do nothing to address the key issues — who will manage the Iraqi oil infrastructure during the American military occupation, under what law, and how will it be used "for the Iraqi people". More crucially, they are silent on what will happen to the existing oil contracts awarded to foreign oil companies after the exit of Saddam Hussein.
The unfolding of the war in Iraq and the statements made by the Bush administration suggest that the military occupation of Iraq could extend for a fairly long period of time, some say up to two years. If that is the case, will the U.S. then represent Iraq in OPEC during this period? There can be no greater irony than the largest oil-importing nation sitting in a producer's cartel discussing production quotas to fine-tune prices. Under international law, the U.S. and its allies would be deemed belligerents. In the event, the traditional Laws of Occupation codified in Articles 43 of The Hague Regulations and the Fourth Geneva Convention of 1949 that set forth the rights and obligations of a belligerent occupying power vis-a-vis the occupied territory should apply. The rights and duties of the occupant power are conditioned primarily by the necessity of maintaining order, and administering the resources of the territory to meet the needs of the inhabitants and the requirements of the occupying forces.
Under the Geneva Convention, movable state property — which includes oil — can be used by the occupant to support the costs of military occupation. The U.S. law that governs similar situations — The Law of Land Warfare — has similar provisions with respect to movable property in the occupied territory. Now that the Oil-for-Food programme has been resumed, current levels of Iraqi oil production will fetch around $ 27 billion a year, of which a quarter will go to the U.N. Compensation Fund.
That would leave less than $ 20 billion a year at prevailing prices. Compare this with the costs of military occupation and reconstruction, not to mention the cost of the war itself. The U.S. President, George W. Bush, has already sought $ 75 billion from the U.S. Congress to part-fund the war effort. Michael O' Hanlon of the Brookings Institution puts the post-war cost of military occupation at $ 50 billion to $100 billion a year. William D. Nordhaus of Yale University estimates the cost of reconstruction to be anywhere between $75 billion and $500 billion. It is naive to expect that the American and the British taxpayers would be called upon to underwrite these humungous costs of war, military occupation and reconstruction of Iraq. The failure to secure the U.N.'s backing for the attack has limited the financing options for the war effort. Unlike in the first Gulf War, this time around, the U.S. cannot expect Iraq's Arab neighbours, already incensed over what they perceive as an unjustified and unprovoked aggression on one of their kind, to foot the bill. The desperate attempts by Washington and London to rope the U.N. into the post-war reconstruction effort reflect this ground reality. In the circumstances, the temptation to dip into oil revenues at least to pay for the cost of occupation would be irresistible.
The other key issue that is of concern to the international community is the fate of the oil contracts awarded by Saddam Hussein to foreign investors. Oil companies from 20 countries — among them three members of the U.N. Security Council, but the U.S. and Britain excluded — have some form of title or claim to exploration and development of oil wells in Iraq. Even by international standards, these deals are sizeable. For instance, the Bin Umar and Majnoon oilfields promised to France's TotalFinaElf can together produce upwards of one million barrels of crude a day while Al Ahdab awarded to China can produce around 90,000 barrels a day. Apart from the cancelled Lukoil deal for West Qurna, five other Russian companies have been awarded or promised some prize oil concessions in Iraq and these are still intact. For any potential investor, these deals mean huge profits. For any oil-importing country, they promise a secure source of supply. Which explains why France and Russia have vowed to defend their interests in a post-Saddam regime. In the handling of the existing oil contracts, the U.S. will be subject, in addition to the laws of occupation in the Geneva Convention, to American case law and the U.N. General Assembly Resolution 1803 on Permanent Sovereignty over Natural Resources (PSNR). The one common thread that runs through all the sources of international law is the advocacy of respect for private property rights. As for the legitimacy of the Saddam Hussein Government in entering into these contracts, a fundamental principle of international law is that property rights awarded by an effective Government — constitutional or not, well-governed or a rogue state — must be respected even after a regime change. As for U.S. case law, in the Percheman Case, Justice Marshall, Chief Justice of the U.S. Supreme Court, had held that change of sovereignty did not impair the rights of private property validly acquired. The PSNR limits the scope for breach of international law principles. It upholds the inalienable right of all the States to freely dispose of their natural wealth and resources in accordance with their national interests, and champions respect for the economic independence of states. It further says, "...the provision of economic and technical assistance, loans and increased foreign investment must not be subject to conditions which conflict with the interests of the recipient state".
However, all this is not to say that the contracts signed during the Saddam Hussein regime are therefore unassailable. The new sovereign, by virtue of its sovereignty, can do what it pleases with the country's resources, even abrogate existing contracts, but under international law that would be considered as expropriation requiring compensation by the repudiating party. Even the PSNR can be cleverly turned into a double-edged weapon to abrogate the existing contracts in the name of the "people of Iraq" on the plea that they were awarded on political considerations and were, therefore, against their interests. Besides, a determined party can get around most of the obstacles by applying the fine-print — which require absence of corruption, obligation to tender public contracts, etc. which may have been part of the domestic law, but had been suppressed by a dictatorial regime. The validity and extent of the title of the various contenders for the Iraqi oilfields will depend on the nature and terms of the contracts themselves, about which there is little information in the public domain. But the U.S. need not even fuss over the finer legal details. It could install in Iraq a regime favourable to its interests and get it to annul existing contracts on the plea that they were awarded on political considerations. Along with Russia and France, which have the biggest stakes in Iraqi oil, a whole host of countries are closely watching the U.S. moves, wondering which excuse would be used to jettison their hard-won oil concessions in Iraq.
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