Lawmakers Call On State Department To Investigate Oil Deals

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First we heard about how Texas-based Hunt Oil might have gotten a behind-the-scenes thumbs up to forge an oil deal with the Kurdish Regional Government in Iraq.

We say behind-the-scenes because officially the White House and State Department opposed all oil deals with the Kurds until the Iraqi federal government in Baghdad reached a deal on oil-revenue sharing. (which they haven’t yet)

Last week we told you about how Bob Schaffer, the Republican candidate for Senate from Colorado, helped forge a deal between Aspect Energy, where he worked, and the Kurds at about the same time last fall.

Now several lawmakers want the State Department’s Inspector General to investigate the matter.

From the AP:

Any behind-the-scenes meddling would have violated administration policy, which was to discourage the business dealings until Baghdad passed a law that would fairly divide the nation’s oil resources among the various provinces. The hydrocarbon law is widely seen as necessary to prevent sectarian tensions once Iraq boosts its oil production.

“We are concerned that U.S. policy regarding these oil contracts has not been clearly defined, communicated, or consistently implemented by the Iraqi government, the Kurdistan Regional Government and international oil companies seeking to do business in Iraq,” the lawmakers wrote in a letter to Harold Geisel, the State Department’s acting inspector general.

The letter was signed by [Sen. Carl Levin] Levin, D-Mich., chairman of the Senate Armed Services Committee, as well as Democratic Sens. Chuck Schumer of New York, John Kerry of Massachusetts and Claire McCaskill of Missouri.

Late Update: Read more for the text of the entire letter.

July 16, 2008

Ambassador Harold W. Geisel

Acting Inspector General

U.S. Department of State

Room 8100, SA-3

2201 C Street, N.W.

Washington, DC 20520

Dear Ambassador Geisel:

We are writing regarding U.S. policy on the entering into of oil contracts in Iraq in the absence of national hydrocarbon legislation and the actions of State Department employees related to these deals. We are concerned that U.S. policy regarding these oil contracts has not been clearly defined, communicated, or consistently implemented by the State Department in its interactions with the Iraqi Government, the Kurdistan Regional Government, and international oil companies seeking to do business in Iraq

Unfortunately, the national hydrocarbon legislation, which would ensure equitable distribution of oil revenues among the Iraqi people and enable increased oil production and long-term foreign investment, remains stalled. Continued failure by the Iraqi Government to pass national hydrocarbon legislation, a political benchmark set by the Iraqis for themselves, risks fracturing the country.

As you know, Hunt Oil Company, an American firm, signed a production sharing contract (PSC) with the Kurdistan Regional Government (KRG) on September 8, 2007. The KRG has subsequently signed more than 20 PSC’s with other international oil companies. Iraq’s Oil Minister has called PSCs like the one signed by Hunt Oil “illegal.” Furthermore, the State Department’s May 2008 report on Iraq states that progress on the national hydrocarbon legislation “is at a standstill” and its prospects for passage have been “further complicated by the KRG’s pursuit of oil contracts.”

Administration officials have stated that U.S. policy strongly discourages oil production sharing contracts between private companies and regional governments in Iraq, including the KRG. However, representatives from Hunt Oil Company have indicated that they specifically asked about U.S. policy regarding such deals in meetings with State Department employees prior to Hunt Oil signing their PSC with the KRG and were told “there was no policy, neither for nor against.” We are concerned that if such a policy was in place prior to the signing of Hunt Oil’s PSC with the KRG, that it was not adequately understood or communicated by State Department employees in their interactions with international oil companies seeking to do business in Iraq.

Published reports indicate that the Government of Iraq is now in final negotiations with five Western oil companies for no-bid “technical service” contracts at existing oil fields. When asked about these contracts on June 19, 2008, Secretary Rice said “the United States Government has stayed absolutely out of the matter of the awarding of Iraqi oil contracts. It’s a private sector matter.” However, subsequent reports indicate that State Department employees advised the Iraqi Government on the drafting of these technical service contracts. These reports were followed on July 1st with news that Iraq intends to award contracts to develop six oil fields and two natural gas fields, with or without the passage of national hydrocarbon legislation.

These contracts would appear to circumvent the national hydrocarbon legislation currently under consideration and could risk further complicating what are already delicate negotiations. We are concerned by the Administration’s silence on these contracts and the message our involvement in drafting no-bid technical service contracts sends to the Iraqi Government about the importance of passing national hydrocarbon legislation.

In light of the concerns outlined above, we request that you initiate an investigation into the following issues:

1.) Was there a clear U.S. policy discouraging oil contracts between private companies and regional governments in Iraq prior to the signing of the PSC between Hunt Oil and the KRG on September 8, 2007? If so, was this policy adequately communicated, understood, and disseminated by State Department employees?

2.) Is there a clear U.S. policy with regard to the need for the Iraqi Government to pass national hydrocarbon legislation?

3.) Is there a clear U.S. policy with regard to the technical service contracts currently under negotiation by the Iraqi Government? If so, is this policy consistent with the U.S. policy under 2.) above?

4.) Is there a clear U.S. policy with regard to the oil field development contracts being considered by the Iraqi Government? If so, is this policy consistent with the U.S. policy under 2.) above?

5.) Has U.S. policy been consistently applied with regard to oil contracts at both the national and regional levels in Iraq?

Thank you for you assistance on these issues.

Sincerely,

Chairman Carl Levin
Senator Charles E. Schumer
Senator John Kerry
Senator Claire McCaskill

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