U.S. to Let Iraq Manage Its Oil

The U.S.-led occupation authority in Iraq has abandoned plans to create an international advisory board to oversee the country’s battered oil industry, opting instead to give Iraqi technocrats a freer hand to chart their own course.

While U.S. and allied officials remain in charge of reconstruction, the decision to scale back foreign supervision signals their increasing confidence in the competence of Iraqi oil professionals and heightened concern about Iraqi political sensitivities, officials said. Instead of answering to a global board of directors, oil technocrats will report to a minister named by the new Iraqi Governing Council.

The move could disappoint those who viewed the ouster of Saddam Hussein as an opportunity to set Iraqi oil policy on a pro-American course, open the nation’s oil sector to Western companies and reduce the influence of OPEC on world oil production and prices.

The decision was prompted in part by the reluctance of foreign oil company experts and prominent Iraqi expatriates to join the board, officials said. The expatriates expressed concern they would be perceived by Iraqis as agents of a U.S.-orchestrated takeover of the Iraqi industry. Some oil companies reportedly were reluctant to assign key personnel to the effort, fearing that their participation might sour future business deals in Iraq.

Retired Shell Oil Chief Executive Philip Carroll will continue to serve as the U.S.-led administration’s senior advisor to the Iraqi Oil Ministry, officials said, but the corporate-style advisory board he was supposed to chair will not be established.

Former Iraqi oil marketing chief Fadhil Othman, who was chosen three months ago to serve as Carroll’s vice chairman, said coalition authorities had concluded there was no longer any need for a high-profile oversight panel.

“Since the advisory committee has not met and has not been completed, they thought the best way was just not to continue with it,” Othman said. “Since there is a new civilian government which can carry out the job, it is of no use any more.”

Othman’s account was confirmed Friday by an official with the Coalition Provisional Authority, or CPA, in Baghdad.

“Once we got in here and got to know the folks in the Oil Ministry and the employees at the oil companies, it became obvious that the expertise was already there,” said the official, who requested anonymity. “So the advisory board just became unnecessary.”

The signal of confidence comes at a particularly sensitive time, as rival political factions within Iraq jostle for influence over postwar oil policy. The Iraqi Governing Council is expected to announce its choice of an interim oil minister within days.

Coalition officials and many industry insiders are backing Thamir Ghadhban, a state oil company executive who has served as de facto minister since the end of the war. Competing exile groups have been promoting their own candidates, arguing that the top job should go to a political leader instead of a career bureaucrat. Perceptions of U.S. intent could affect the debate.

Some critics have accused the U.S. and its allies of waging war in Iraq to secure access to the world’s second-largest petroleum reserves and privatize its state-run oil companies. The creation of a multinational advisory board -- with a U.S. oil company executive as chairman -- was seen by some as confirmation of that agenda.

Decisions about Iraq’s oil industry are critical to the reconstruction effort as well as to the country’s future. Oil provided virtually all of Iraq’s export revenue in recent decades, and the United States and its allies are counting on a rapid restoration of production to bankroll most of the costs of reconstruction.

Over the longer term, policy decisions regarding foreign participation in oil field development and privatization of state-owned enterprises could have significant effects on Iraq’s economic progress and domestic politics.

Coalition officials said they would leave it up to the new Governing Council to determine whether any kind of advisory group was needed to oversee Iraq’s oil industry.

“The Governing Council really needs to make the decision if there should be an advisory board and who should sit on that advisory board,” the CPA official said.

The creation of the advisory board was announced with considerable fanfare in early May. U.S. authorities said it would consist of a dozen or more international oil experts, including Iraqi industry expatriates, who would provide “professional advice and guidance” to the Oil Ministry management team headed by Ghadhban.

To chair the panel, the coalition turned to Carroll, a veteran oil industry executive who retired as chief executive of Royal Dutch/Shell Group’s U.S. operations in 1998 and later spent three years at the helm of Fluor Corp., an Irvine-based engineering and construction firm.

Othman, who headed Iraq’s State Oil Marketing Organization before retiring to Turkey in 1995, was named vice chairman, and coalition officials said other oil experts would be added to the advisory board to help guide the reconstruction effort.

But no other appointments were made, and word began circulating that the coalition was finding it difficult to recruit qualified candidates.

“They did have problems in getting people,” said former Iraqi Oil Minister Issam Chalabi, now an independent industry consultant in Jordan, “not only Iraqis, but even some experts from oil companies who preferred to stay away from such a board, thinking this might harm their future business relations.”

Meanwhile, Carroll and other coalition officials were becoming increasingly impressed with the management and leadership skills of Ghadhban, who headed the Oil Ministry’s planning department before the war, and other top Iraqi technocrats who remained on the job after the fall of Hussein’s regime.

“With time, the administration has gradually built up confidence. It has learned that the Ministry of Oil has a lot of experts, and they know what to do,” said Thamir Uqaili, a former ministry official who advised the State Department on reconstruction policy and now represents industry interests in Iraq.

Uqaili said he thought the original plan to create an advisory board made sense several months ago but that its value has diminished.

“At the time, the administration didn’t know the Iraqi facilities or the capabilities of the Ministry of Oil. There was a complete absence of knowledge,” Uqaili said. “The committee, had it been formed earlier, would have been very good to bridge the gap, and could have influenced the decision-making process. Now we are a little bit late.”

Although some administration critics had predicted that Carroll’s appointment was the first step in a U.S.-led effort to promote international oil ventures in Iraq, the silver-haired Shell veteran has kept a relatively low profile since arriving in Baghdad.

Industry insiders said he had developed a close working relationship with Ghadhban and had helped convince U.S. civil administrator L. Paul Bremer III and other coalition officials that the Iraqis could be trusted to run their own oil shop.

Carroll could not be reached for comment. Coalition officials said he was taking time off in London and would return to Iraq this week.

Recent industry rumors that Carroll was reducing his involvement in the reconstruction effort were erroneous, a CPA official said.

“He is definitely continuing in his capacity as senior advisor,” the official said. “His time commitment in Iraq is not going to be scaled back at all.”

Othman, however, said his role as Carroll’s partner is through.

“We worked for two or three months to build the ministry and nominate candidates,” Othman said. “I will not be continuing. My job is finished.”