[ATimes] The door to Iraq's oil opens

Looks like it's true then. Accordingly to Presidential candidate
McCain, US will stay in Iraq for 100 years if that is what it takes.

The door to Iraq's oil opens
By M K Bhadrakumar, February 2008

The cynosure of Western eyes at the meeting of the Organization of
Petroleum Exporting Countries, commonly known as OPEC, in Abu Dhabi,
the United Arab Emirates, last December 5 was an unexpected
personality - Iraqi Oil Minister Hussain al-Shahristani.
But that wasn't a chance occurrence. By the time OPEC gathered in
Vienna six weeks later, it was beyond doubt that Shahristani was on
the way to becoming a celebrity in the West.

Shahristani is "a rare thing" in politics, to quote Toby Lodge, the
well-known scholar on Iraq at the International Institute of
Strategic Studies in London - "not too religious, not too political,
not too secular, not too pro-American Shi'ite who [Grand Ayatollah
Ali] Sistani would talk to".

But for the ease with which Shahristani traversed in his later years
the dividing line that separates religiosity and idealism from
worldliness and pragmatism, Shahristani would have become a cult
figure for human-rights activists, given his extraordinary background
as a top nuclear scientist who turned a stubborn dissident, and then
a reckless jail breaker from Saddam Hussein's Abu Ghraib prison where
he was tortured and tucked away in solitary confinement for an
impossibly long 10 years till 1991.

But in Abu Dhabi, if Shahristani became a rising star for the Western
media, that was for an entirely different reason. It was hardly
metaphysical. Plainly speaking, the media had good enough reason to
flatter him and pamper his vanities.

Iraq's 'super giants'
Of course, the soft-spoken, English-speaking Iraqi Shi'ite dissident
leader was a familiar face in Western capitals through the 1990s. But
today, he is no longer a political fugitive. He is no longer an Iraqi
dissident seeking patronage. On the contrary, Shahristani finds
himself in an enviable position as a creator of wealth for the
Western world. He holds the key to the door that opens out to the
magical world of Iraqi oil.

Iraq's proven reserves of oil are only smaller than those of Saudi
Arabia and Iran - and Iraq is only about 30% explored. Experts are
generally of the view that Iraq's actual oil reserves could well turn
out to be at least double the 115 billion barrels of proven reserves.
Beyond that, it is anybody's guess as to the scale of Iraq's as-yet-
untapped gas reserves.

And Shahristani is visibly getting ready to negotiate the contracts
for Iraq's "super giants". In the idiom of Big Oil, "super giants"
are fields with at least five billion barrels of oil in reserve.
Iraq's super giants are Kirkuk (in Kurdistan), Majnoon (bordering
Iran), Rumaila North and South (in the south), West Qurna (west of
Basra) and Zubair (in the southeast) fields, and, possibly, the Nahr
Umr and East Baghdad fields. In addition, Iraq is estimated to have
22 "giant" fields, each having more than 1 billion barrels of oil.

In fact, Iraq may host the largest untapped reserves in the world.
There is a strong likelihood that Iraq's reserves may turn out to be
exponentially higher than the current estimations, which are based on
old-style seismic surveys. All said, unsurprisingly, the world oil
market is in a tizzy when Shahristani says something, anything. He is
about to sign the contracts for these and many other large Iraqi oil-
producing fields.

That indeed makes Shahristani a very important statesman today - at a
time when worldwide oil demands are rising and consumer countries
have appeared in Asia with gargantuan appetites for energy, when the
oil majors' booked reserves are in decline and the known global
reserves happen to be primarily under nationalized systems.

The acuteness of the situation is apparent from the stark warning by
the former chairman of the United States Foreign Relations Committee,
Senator Richard Lugar, last year in a speech in New York that
something like three quarters of the world's oil reserves are located
in countries which are not under American influence.

To cap it all, "we're in a new oil policy ball game", as author Steve
Yetiv and economist Lowell Feld recently wrote, which is that the
US's capacity to ease oil prices is diminishing. On his recent visit
to Saudi Arabia, US President George W Bush pushed the subject of
high oil prices increasing the likelihood of an American, and
therefore, a global recession. There was a time since the late 1970s
until quite recently when the US's Saudi allies would have promptly
pumped the market with additional oil for depressing the price. This
time around, the Saudis heard out Bush, "noted that the weakening US
economy is a valid concern, but they remain reluctant to increase oil
supply".

The two writers pointed out, "Saudi Arabia's reluctance to address
sustained high oil prices, even in the face of a potential recession,
represents an important break with past Saudi oil policy ... Why? The
answer may define oil in the 21st century - or at least underscore
the reasons for the US to seek greater oil independence."

Urgency for Iraqi oil
Yetiv and Feld, with much hesitancy, proceed to make an absolutely
unthinkable suggestion that the Saudi reluctance might be borne out
of a possibility that Riyadh is "getting global markets ready for the
possibility that they may not have enough oil to be a long-term fuel
pump to the world".

After all, it merits attention that the US Energy Information
Administration (EIA) significantly has revised its earlier 2000
prediction about how much oil Saudi Arabia would produce in 2010. The
EIA scaled back the figure from 14.7 million barrels per day to just
11.4 million barrels per day. That is a major reduction. (Feld,
incidentally, worked for 17 years for the US Department of Energy.)

In the current circumstances of the world energy scene, the above
underscores why any plan to hasten the US effort to achieve greater
oil independence translates in political terms as taking control of
Iraq's oil reserves. There is simply no other viable alternative open
to the US. Essentially, it boils down to the 20 words that the former
US Federal Bank chief Alan Greenspan wrote towards the end of his
memoir, The Age of Turbulence: Adventures in a New World, "I am
saddened that it is politically inconvenient to acknowledge what
everyone knows: The Iraq war is largely about oil."

According to the International Energy Agency, the world demand for
oil is set to increase from the current level of 85 million barrels a
day ( mn b/d) to 116 mn b/d in 2030. Three quarters of the world's
oil reserves (1,200 billion barrels) are located in the OPEC
countries, with the Persian Gulf countries accounting for 62%. But
the Persian Gulf countries are disinclined to raise their oil
production sharply enough to meet the increase in global demand.
Saudi Arabia, which has the world's largest oil reserves, for
instance, is only planning to increase its oil production by 1.5 mn b/
d over the next several years.

Therefore, it becomes imperative that Iraq plays a major role in
meeting the additional global demand of 30 mn b/d during the coming
two decades. There is yet another side to it. Peak oil - when global
oil production will reach a peak and then begin to fall - is a real
possibility sooner or later. It has happened in the US; it is
happening in Britain, the North Sea and Indonesia; it is expected to
happen in Mexico and some other major oil producing countries during
the coming five-year period.

In this scenario, the criticality of Iraqi oil production cannot but
be overstated. Furthermore, Iraq is particularly blessed in certain
other ways. Apart from its massive reserves of oil and gas, the cost
of oil production in Iraq at US$1 to $2 per barrel is very low.
Second, the oil fields are dispersed evenly across the country.
Third, Iraq's location itself is a boon. Unlike, say, the Caspian,
Siberia or the Arctic, it is easy to develop oil export routes out of
Iraq heading in several directions simultaneously - the Persian Gulf,
Saudi Arabia, Kuwait, Jordan, Syria and Turkey. All this means that
rapid expansion of Iraq's oil production and the arrival of
substantial amounts of Iraqi oil - exceeding 10 mn b/d - in the
international market is an attainable objective.

US presses for Iraqi deals
A major impediment has been the dangerous security situation within
Iraq. But a significant US achievement in recent months has been the
end of much of the fighting inside Iraq. Clearly, the US has bought
off large segments of the Iraqi insurgency. Thousands of Arab Sunni
fighters in western Iraq and parts of Baghdad have converted
themselves as "comprador" militia at the beck and call of the US
military. Such US-financed "resistance fighters" could number over
80,000 former insurgents.

Today, they actively collaborate with the US military in destroying
the residual forces of the Iraqi resistance in the east and north of
Baghdad and in cities such as Baqubah, Tikrit and Mosul, which are
the residual hotbeds of insurgency. They have virtually decapitated
al-Qaeda in Iraq. The four-province region of the Multi-National
Division-North (comprising Diyala, Salahuddin, Ninevah and Tamim
provinces), which used to be the favorite haunt of al-Qaeda fighters,
is all but completely pacified. The US forces' commander in the
region, Major General Mark P Hertling, has been quoted as claiming,
"So many of them [al-Qaeda fighters] are going to the desert regions
to just get away from being ratted out by the citizens and being
pointed out and captured.

"Some of them are saying it's not even safe in the desert because the
night raids are coming to get them. And that's a good thing. We want
them to keep thinking that they can't sleep well at night because
we're coming after them, because, quite frankly, we are."
All indications are that the US has in the more recent period met
with success in striking a similar deal with the troublesome Mahdi
Army militia owing allegiance to Muqtada al-Sadr, which controls the
Shi'ite districts of Baghdad.

This can be expected to have a positive impact on pipeline security.
According to various estimates, there have been over 600 incidents of
pipeline attacks since the US invasion of Iraq in March 2003; some 60
attacks on refineries; and over 500 attacks on tanker trucks. Close
to 650 Iraqi oil workers might have been killed or wounded or
kidnapped. Iraq's dual pipelines in the north heading toward Turkey
were a major target of attack. The improving security situation has
been a factor in increasing Iraq's oil production to nearly 2.4 mn
bpd by end-2007, which is the highest level since the US invasion.

Oil production is now expected to cross the pre-war level of 2.6
million barrels by end-2008. Shahristani told The Times that he
expected production to reach 6 million barrels per day within the
next four years. The International Monetary Fund has predicted that
Iraq's economy, boosted by the increase in oil revenues, is slated to
grow by 7% this year as compared to 1.3% last year. The Times
newspaper recently reported that the real estate market has been
sharply picking up in parts of Baghdad city and there are visible
signs of a construction boom

As can be expected, Washington is keen to exploit the vastly improved
security situation in Iraq. The Bush administration is leaning on
Shahristani not to wait for the fractious Iraqi Parliament to approve
the Iraqi oil law that would have provided a legal framework for
foreign investment in the oil industry. As the first step, the
executives of some of the world's oil majors have been meeting with
Iraqi Oil Ministry officials since January 24 in Amman, Jordan, for
discussing the terms of technical support contracts, which are in the
nature of shorter-term deals.

Shahristani told Argus Media recently that these service contracts
will "help Iraq fast-track the purchase of necessary equipment and
train the Iraqi people to install them". He said these companies
would be favored in a bidding round for longer-term contracts on the
Iraqi oil fields set for later this year. Another bidding round is
expected to take place next year.

The Times of London reported that ExxonMobil, Chevron, ConocoPhillips
and Shell have been targeted by the Iraqi Oil Ministry for awarding
the service contracts (known as "technical support agreements" or
TSAs). The report said that in exchange for the oil, these four oil
companies would direct training of Iraqi workers and equipment to
Iraq's largest oil and gas fields. The Middle East Economic Survey
has quoted Shahristani as saying that the service contracts will be
signed "within a few weeks". The general expectation is that the TSAs
will be signed during the third round of discussions due in March.

Meanwhile, the Iraqi Oil Ministry's deadline for any interested oil
firms to pre-register for the larger contracts to develop oil fields
falls on February 18. Shahristani has promised an open bidding and
transparent process but only in the event that he will be the
decision-making authority. He suggested that competition would be
intense. "Everybody in the world, more than 45 companies, have
approached us [the Iraqi government] and shown a very keen interest
in working with us - the Chinese, Russians, Indians, Brazilians,"
Shahristani said.

In sum, as Ben Lando, United Press International's energy editor put
it, "Big Oil's big dreams are close to coming true ... According to
insiders, Shell, which produced a technical study of Kirkuk in 2005,
wants a deal for the field. BP wants one for Rumaila, which it
studied last year. Shell and BHP Billiton are angling for the Missan
field in the south. ExxonMobil is interested in the southern Zubair
field while the Sabha and Luhais fields are being targeted by Dome
and Anadarko Petroleum. ConocoPhillips is talking with the [Iraqi]
ministry about the West Qurna oil field ... Chevron and Total have
teamed up in a bid for the Majnoon field."

No doubt, it is pay-off time for the four majors who didn't make an
issue of the US military occupation of Iraq or the ensuing mess-ups
during Paul Bremer's rule or the ensuing acute security situation,
but kept going with their nose on the ground and worked with the
Iraqi ministry during the past four years in conducting reservoir
surveys, assisting in the drawing up of work plans and in training
personnel. These oil majors simply chose to be around in Baghdad even
when much of the oil industry was idling. Lando adds, "While service
contracts would be highly profitable for companies, Big Oil wants
risk contracts. Such deals are usually long term, covering its
exploration costs and guaranteeing a profit if oil is found, and
allowing them to put the reserves it discovers on the books, a boon
in Wall Street's eyes."

Iraqi public opposition
Of course, Shahristani is skating on thin ice. His moves, despite the
robust backing by the Bush administration, are political and highly
controversial. The point is, Shahristani is virtually in a position
to hand out jackpots to the oil majors. Everyone knows that apart
from the security factor, the risk in exploring for crude in Iraq is
virtually nil. "Historically it [oil] has been easy to find,
inexpensive to produce and top quality", Lando points out.

Washington counts on Shahristani to push the oil deals through
despite the vehement opposition within Iraq. First, about 70% of
Iraqis firmly oppose what Shahristani is attempting. The Iraqis see
what is happening as a capitulation of their national sovereignty.
Iraqis look back at the nationalization of their oil industry in 1972
as a source of pride and empowerment. Second, there is vehement
opposition from the labor unions in the Iraqi oil industry. They say
that Iraq could increase its oil production by investing its own
money and there is no pressing need at this juncture to solicit
foreign investment.

Indeed, in 2006, the Iraqi Oil Ministry could only utilize 3% of its
$3.5 billion reconstruction budget. The US Defense Department in a
December 2007 report acknowledged, "The lack of capacity in
contracting, the lack of trained budget personnel, concern about
corruption and numerous other systemic structural impediments hamper
faster execution."

Iraq's oil exports in 2007 brought in $35.5 billion, according to the
US State Department. But a study by the Washington Times newspaper in
January concluded, "Increased oil revenues stemming from high prices
and improved security are piling up in the Federal Reserve Bank of
New York rather than being spent on needed reconstruction projects."

To be sure, the Iraqi labor unions have a point when they say that
foreign investment is not the real need for the oil industry
currently, but rather the ability to invest the surplus budget.
Again, the labor unions are questioning the need of foreign
expertise. They insist that national expertise is available within
Iraq. The fact remains that in spite of Saddam's gross mismanagement
of the oil industry, Iraq had built up over the years a significant
reservoir of manpower with a range of technical expertise.

"If they [Oil Ministry] are prepared to allocate more funding and
spend the resources that already exist, there would be improvement
and we could recruit more workers," Hassan Jumaa Awad, president of
the umbrella Iraqi Federation of Oil Unions recently told the United
Press International news agency. Awad alleged that Shahristani is
following a "deliberate" policy of shunning domestic investment with
a view to make Iraqi oil workers look incapable.

The labor unions have now sought the help of the international labor
community to their demands, which also question Shahristani's
intentions in awarding to international oil firms concession or risk
contracts such as production-sharing agreements. Awad calls for an
Iraqi oil law, "but we need to gain our full sovereignty before such
a law is enacted", and he insists that if a law is to be passed, it
should be approved by Iraqi voters in a referendum.

Iraq's oil unions and civil society organizations have joined hands
in alleging that Washington and the present authorities in Baghdad,
especially the Oil Ministry, are conspiring to hand over control over
Iraq's oil to oil majors. The news agencies reported that protesters
who fear that Iraq's oil wealth might be squandered met at a Middle
East oil conference on February 5 in London where Iraqi and British
oil industry leaders attended.

Bush's Iraq legacy
But the Bush administration's priorities lie elsewhere. It is highly
unlikely to pay heed to Iraqi public sentiments. There is precious
little time left for the Bush administration in the White House. But
it's not just pork-barrel politics, either. There is also the aspect
of the legacy of the Bush administration. With the Iraqi "surge"
having proved a success, Bush is undoubtedly gearing up for the
epitaph to his Iraq odyssey.

Big Oil deals in Iraq form the core of Bush's strategy of creating a
legacy for the US in the Middle East that may run for decades. Big
Oil needs the assurance of a near-permanent US military presence in
Iraq. And Bush is determined to provide that assurance. He is
convinced that no serious American politician would defy the wishes
of Big Oil. By logic, therefore, Bush is creating a historical legacy
of an Iraq that will remain under American control for decades to come.

Therefore, the Op-Ed in The Washington Post on Wednesday jointly
authored by Secretary of State Condoleezza Rice and Secretary of
Defense Robert Gates is extraordinary for its thumb sketch of what
Bush's Iraq legacy is going to look like. The two top officials have
written that a "crucial phase" is about to begin with the US
negotiating a basic framework agreement with the Iraqi government
aimed at "normalized relations".

By the end of this year, the Bush administration proposes to
altogether dispense with the fig leaf of the current requirement that
the United Nations must authorize on an annual basis the presence and
role of the US military in Iraq under the relevant UN resolutions.
Rice and Gates argue that the Bush administration "would rather have
an arrangement that is more in line with what typically governs the
relationships between two sovereign nations". Period.

The US-Iraqi framework agreement to be negotiated seeks to establish
"a strong relationship with Iraq, reflecting our [US] shared
political, economic, cultural and security interests". In other
words, Washington will have ensured that US policies in Iraq are
sequestered from the purview of the UN once the US-Iraqi framework
agreement is through by the end of the year. Concerned parties like
Russia (or China) will simply be faced with the fait accompli of what
the US chooses to do with Iraq.

Second, the US-Iraq bilateral framework will include what is known as
a "status of forces" agreement, which is based on a recognition that
"US forces will need to operate in Iraq beyond the end of this year
for progress in stabilizing Iraq to continue. In these negotiations,
we [US] seek to set the basic parameters for the US presence in
Iraq." Third, the basic framework with Iraq will be negotiated with
bipartisan support, fully involving the US Senate's treaty-
ratification authority via the appropriate committees of the Congress
with briefings for the lawmakers and congressional input so that 2008
will go down in history as "a year of critical transition in Iraq ...
a foundation of success in Iraq - a foundation upon which future US
administrations can build". Once the hurly-burly of the primaries is
done in the presidential race, Bush proposes to invite the
presidential candidates to contribute to the finessing of the US's
Iraq strategy in the coming period.

What becomes evident is that the Bush administration neither intends
to cut and run from Iraq nor is it in search of an exit strategy. On
the contrary, it is ensuring that Iraq remains under American control
for as long as it takes for the US to evacuate the oil and gas out of
that country. Bush sees this as his historical legacy.

Bush is confident that his troop "surge" strategy in Iraq is working.
According to US columnist and author David Ignatius, Bush favors
keeping US force in Iraq close to the pre-"surge" level of 130,000
troops. Ignatius wrote, "Bush in effect is redoubling his bet on
success in Iraq." It is a risky course insofar as Iraq is a
polarizing issue in an election year. But there is logic in betting
that with such high stakes for Big Oil in Iraq - thanks to
Shahristani's deals - no serious US politician with presidential
ambitions would undermine Bush's desire for continuity and his plans
to leave behind a stable Iraq.

Russia stages comeback
Indeed, the rest of the world has already decided that it is time to
take the Bush legacy in Iraq seriously. The alacrity with which
Moscow is hurrying to get onto Shahristani's gravy train is the
latest tell-tale sign. Moscow is highly unlikely to waste its time in
rhetoric ridiculing the Bush administration by pointing out that the
US needs assistance to save face and leave Iraq with dignity or that
Russia could help stabilize the situation, and so on.

Shahristani visited Moscow last August, but at that time Moscow
committed the folly of not taking him seriously. (Actually,
Shahristani was a university student in Moscow in the 1960s.) A
Moscow commentator wrote after his visit, "The oil minister may say
whatever he wants about the operations of foreign companies in Iraq,
but the Iraqi Parliament has not yet passed a law on oil and gas.
Therefore, oil companies can only make assumptions about work in Iraq."

But Moscow didn't need much time to revise its opinion and to take
Shahristani very seriously. In November, Shahristani, guided by
American legal advisors, canceled Russian oil company Lukoil's
contract with Saddam's regime for the vast oil field in Iraq's
southern desert, West Qurna, with estimated reserves of 11 billion
barrels of oil. Shahristani announced the field would be opened to
new bidders as early as 2008. "We will defend our interests," a
senior Kremlin official warned. Moscow threatened to revoke a 2004
deal with creditor nations to forgive $13 billion in Iraqi debt.

But Moscow learned that ConocoPhillips was seriously eyeing West
Qurna. Moscow concluded that Iraq's oil scene was up for grabs,
predators were around and there was no more time to lose. Thus, the
formal signing of the agreement on Monday in Moscow writing off most
of Baghdad's Soviet-era debt has not come a day too soon. The
agreement stipulates that Russia will initially write off 65% of
Iraq's $12.9 billion debt, accrued mostly from Saddam's arms
purchases, and of the remaining $4.5 billion, 80% will be forgiven in
two stages by 2009 if Iraq meets economic targets set by the
International Monetary Fund, leaving Iraq to repay $900 million over
a 17-year period from 2011.

The agreement opens the way for Russian oil companies' return to
Iraq. Separately, Russia has agreed to invest $4 billion in Iraq,
including the Iraqi oil industry. Close on the heels of the debt-
relief agreement, Moscow has indicated that Lukoil and other
companies including OAO Zarubezhneft, a state-owned oil producer, and
OAO Mashinoimport, a supplier of machinery for energy industry, are
"preparing" to return to Iraq. The Iraqi government has promised to
pay "special attention" to previously signed contracts with Russian
companies. But things may not be easy. The return of the Russian
companies will be subject to US acquiescence, which in turn means
Moscow will henceforth have to significantly roll back its earlier
criticism of the Bush administration's Iraq policy.

Russian Foreign Minister Segei Lavrov has stressed Moscow's "utmost
interest" in launching projects in the Iraqi gas, oil and electricity
sectors, "but for the successful implementation of plans of economic
development of Iraq it is necessary to solve two political problems:
to achieve national reconciliation and settle the security issue". In
essence, Lavrov underscored Russia's determination to seriously engage.

How the Russian "re-entry" plays out will be interesting to watch.
Washington - and Shahristani - will have to work out the implications
of the return of Russian oil companies to Iraq. A Middle East expert
in Moscow pointed out, "If Russian companies are let in, somebody
else will be kept out. It is not a matter of market competition."

EU reaches out to Iraq
But Iraq is likely to impact Russia's fortunes in a much more
profound way on a second front where Moscow's ability to influence is
virtually nil. Moscow will be watching with anxiety the progress of
the energy dialogue that has commenced between the European Union and
Iraq. Alarm bells would have rung in Moscow when Shahristani
travelled to Brussels and met the EU officials on January 31.

EU officials have openly acknowledged that their desire to seek
closer energy ties with Iraq is a critical component of their broader
strategy to reduce Europe's dependence on Russian energy supplies. EU
countries currently depend on Russia for roughly a quarter of their
gas supplies. EU External Affairs Commissioner Benita Ferrero-Waldner
told Shahristani, "Iraq is a natural energy partner for the EU, both
as a producer of oil and gas and as a transit country for hydrocarbon
resources from the Middle East and the Gulf to the EU."

She said the EU was keen to see Iraq link into the Arab Gas Pipeline
project from Egypt to Jordan near the Syrian border, which is under
construction and is expected to allow European customers to tap into
supplies from Egypt and other countries along the line via Turkey.
The EU's Arab Gas Pipeline project forms part of the 3,300-kilometer
pipeline to transport gas from the Middle East and Central Asia to
Europe while bypassing Russia.

The plan is to transport Iraqi natural gas from a gas field in
southern Iraq to the EU through the Arab Gas Pipeline, which, when
completed, will connect Syria, Jordan, Lebanon, Egypt and Turkey.
Iraqi gas could then reach Europe through the planned Nabucco
pipeline, which is to run from Turkey to Austria. Iraq has been
invited to an upcoming ministerial meeting on the Arab Gas Pipeline
project.

An interesting sideline is that access to Iraqi energy suddenly makes
the Nabucco pipeline viable. Russia, through robust efforts in the
recent past had gained the high ground as the key energy supplier for
the southern European countries. The Russian efforts had dampened
Nabucco's prospects despite Washington's vigorous backing for the
project. Now, when it appeared that Moscow had all but finished off
Nabucco, thanks to Iraqi energy, Nabucco is rising again as a major
challenge to Russia's interests as the major energy supplier for
Europe. The implications for Europe's relations with Russia and even
for the trans-Atlantic relations are far-reaching.

Shahristani told his EU interlocutors in Brussels that Iraq planned
to develop its gas fields this year and should be in a position to
supply Europe with gas "in two or three years". Iraq is estimated to
have 111 trillion cubic feet of natural gas reserves. Royal Dutch
Shell, France's Total and Italy's Edison are seeking Shahristani's
approval for a deal to develop one of Iraq's largest gas fields,
Akkas, located near the Syrian border, which could be connected to
the Arab Gas Pipeline.

On the oil front, Shahristani said in Brussels that Iraq is studying
the possibility of new pipelines through Turkey. Oil from the Kirkuk
fields in northern Iraq is currently exported through a pipeline that
links up the Turkish Mediterranean port of Ceyhan.

India-Israel energy ties
EU-Iraq energy ties will be a worrisome development for not only
Russia but also for Iran. Tehran has been nurturing the hope that the
EU's strategy to diversify its energy imports would eventually give
impetus to the European countries to normalize their relations with
Iran and that in turn would prompt them to withstand the US pressure
to isolate Iran. But Tehran is watching with dismay that Iraq is fast
becoming a golden goose for the EU and the expansion of EU-Iraq
energy ties may dampen any sense of urgency in the European capitals
for building up an energy dialogue with Iran in the near term.

The virtual "loss" of the EU market - in the near term, at least -
compels Iran to turn more toward the Asian region. But here too, US
pressure is working on India, one of Asia's most significant energy
markets, from linking up with Iran. Washington is instead encouraging
Indian companies to become active in Iraq. Ideally, Washington would
like to promote a Turkey-Israel-India energy grid that could tap into
the Iraqi reserves. This approach also fits in with the US
geostrategy of developing Turkey, Israel and India as three "pivotal"
states that are Washington's natural allies in the regions
surrounding the volatile Middle East.

In January, Turkey launched a feasibility study for a natural gas
pipeline connecting northern Iraq's fields to its Mediterranean port
of Yumurtalik, which will run parallel to the oil pipelines. Once the
northern Iraq gas fields are developed, 353 billion cubic feet of
natural gas will flow to Yumurtalik. Turkey hopes to export liquefied
natural gas (LNG) by tankers to destinations such as Israel and
India. There is strong US backing for the project.

To the extent that India is kept away from linking with Iran,
Washington also hopes to scuttle the prospect of an Asian energy grid
developing that might involve Iran, Pakistan, India and China
alongside Russia and the Central Asian states. Significantly, serious
discussions have begun for the first time between Turkey and India on
energy cooperation.

Turkish Foreign Minister Ali Babacan, who visited Delhi recently, has
reportedly proposed to his Indian counterpart the possibility of
Turkey exporting oil from the Ceyhan port to Israel's Ashkelon-Eilat
pipeline and Indian super tankers sourcing oil from the Israeli port
of Eilat in the Gulf of Aquba. A visit by Turkish President Abdullah
Gul to India, followed by a visit by Prime Minister Recep Tayyip
Erdogan, is in the cards.

The Indian Oil Corporation is already building pipelines in Turkey. A
major Indian company belonging to the powerful Reliance Group (which
has collaboration with Chevron) is active in northern Iraq. (By a
curious coincidence, the Kurdish leadership in northern Iraq and the
Indian government have employed the same lobbying firm - run by
Robert D Blackwill, a former deputy national security advisor and
ambassador in New Delhi - to canvass for their interests in Washington.)

Indian companies have traditionally been active in the Iraqi oil
sector. But what explains the US's interest at this juncture is that
energy cooperation in Iraq could significantly cement the strategic
ties between Israel and India and thereby ease Israel's regional
isolation. On the face of it, it would have made eminent sense for
India to connect Iraq via a pipeline through Iran. But Washington's
entire strategy is to cut Iran out of the loop and to instead
encourage Turkey, Israel and India to forge an energy grid.

However, a Turkey-Israel-India energy grid may face domestic
opposition within India. The question of India partaking of the
economic bonanza of US-occupied Iraq may militate sections of the
Indian public opinion. The present Indian Parliament has adopted a
resolution which seriously delimits Delhi's collaboration with US-
occupied Iraq. How Indian public opinion reconciles its antipathy
towards US "imperialism" with the tantalizing prospect of the country
tapping into Iraq's vast energy reserves will offer an engrossing
political and diplomatic spectacle. But, in the short term, the
prospect of Iraq as a significant source of energy supply is surely
working as yet another damper on India-Iran energy cooperation. In
that respect, the US strategy is working.

Turkey major beneficiary
In sheer geopolitical terms, the single biggest beneficiary out of
all Iraq's neighbors is going to be Turkey. Shahristani's projects
will catapult Turkey into the status of a crucially important energy
hub in the US's strategy. During his Washington visit last month,
Turkish President Gul had meetings with Bush, Vice President Dick
Cheney and the secretaries of State and Energy. The agenda of
discussions related to the US and Turkey jointly working in Iraq to
develop its energy sources.

US-Turkey energy cooperation in Iraq impacts on the geopolitics of
the region in many directions. First, Washington will expect that
Turkey go slowly on expanding and deepening its cooperative ties with
Iran, a trend that the Bush administration had been viewing with
disquiet in the recent past. Turkey can be expected to respond with
pragmatism and calibrate its ties with Iran in accordance with the US
sensitivity.

In turn, any recalibration of the dynamics of Turkish-Iranian ties
will be a matter of utmost satisfaction for Israel. Correspondingly,
therefore, we may expect a revival of warmth in Turkish-Israeli
relations. Furthermore, Turkey is now poised to be a conduit for
energy supplies from northern Iraq to Israel. Israel already enjoys
strong influence in the Kurdistan region in northern Iraq. Thus,
there is a tremendous convergence of interests between Turkey and
Israel over issues of Israel's energy security.

The Israel-Turkey political axis is bound to consolidate in the
coming period, thanks to Iraq's oil. But from Turkey's point of view,
the most important outcome is the readiness on the part of Washington
to disengage from its erstwhile Kurdish allies in northern Iraq. This
is already giving Ankara a relatively free hand in militarily
countering Kurdish militant activities. Washington is not only
turning a blind eye to Turkish military incursions into northern Iraq
but is even reportedly sharing vital intelligence with Turkey, which
makes the Turkish military's "hot pursuit" of Kurdish militants
inside northern Iraq more effective. Washington is definitely leaning
on the Iraqi Kurdish leadership to rein in the activities of Turkish
militants based in northern Iraq.

Equally, Turkey is able to exploit the vested interests of Iraqi
Kurdish leaders in oil trade. There are signs that Iraqi Kurdish
leaders are cooperating with the Turkish military operations in
meaningful ways.

Turkey has certainly influenced the US decision to scuttle on
technical grounds the holding of a referendum regarding the status of
oil-rich Kirkuk region in December as provided under the provisional
Iraqi constitution of 2005. Conceivably, growing US dependence on
Turkey could even lead to an indefinite postponement of the
referendum beyond June this year. Turkey is pressing for a UN-
negotiated "special status" for Kirkuk, making it a region unto
itself. Washington may well heed the Turkish suggestion. At a
minimum, Ankara can heave a sigh of relief that the specter of an
independent Kurdish national identity taking shape in northern Iraq
has receded into the background. Without US backing, it is simply not
possible for the Kurds in northern Iraq to assert their independence.

Turkey also finds common ground with the Iraqi Sunni and Shi'ite
political blocs, who have made a pact against holding any referendum
in Kirkuk until a new law is passed that would firmly establish
Baghdad's control over the province's oil wealth. This enhances
Turkey's leverage in Baghdad. The Iraqi political alliance
challenging the Kurdish separatist aspirations includes as many as
145 legislators in the 275-member Iraqi Parliament.

Indeed, from the Turkish perspective, all this is far from offering a
permanent solution to the Kurdish problem as such. As the prominent
Turkish editor Ilnur Cevik pointed out recently, "It is a problem
that has to be addressed with pragmatism and with the notion that
there are citizens of Kurdish origin who still do not feel they are
being treated as first class citizens of the Turkish republic." But
the fact remains that Turkey gains valuable time to set its own house
in order while Washington dotes on Ankara as a key ally in Iraq.

Turkey has played its cards brilliantly. With the correct mix of
strategic defiance and realism, Ankara has persuaded the Bush
administration to view the northern Iraqi situation through its
prism. In fact, out of all Iraq's neighbors, it is Turkey that the US
will have to count on in the coming period. The Turkish-US
relationship, which went through a bad four-year period following
Ankara's refusal to assist in the US invasion of Iraq, has certainly
regained some of its traditional verve as a key alliance. This adds
immensely to Turkey's regional status vis-a-vis its Arab neighbors,
Russia, Iran, and even the European countries.

Turkey's influential role in Iraq, in fact, makes it a significant
player in the Middle East. But, more important to medium-term Turkish
national priorities would be that Europe would be more inclined as
time passes to take note of Turkey's strategic importance. For the
EU, Turkey is emerging as a vital energy bridge connecting the Middle
East. At some point in the foreseeable future, this should turn to
Turkey's advantage, if only Ankara relentlessly continues to pursue
its EU membership.

M K Bhadrakumar served as a career diplomat in the Indian Foreign
Service for over 29 years, with postings including India's ambassador
to Uzbekistan (1995-1998) and to Turkey (1998-2001).

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