US Vows To Follow Law As Occupier Of Iraqi Oil Fields
(Copyright © 2003 Energy Intelligence Group, Inc.)
Wednesday, March 12, 2003, 14:10 GMT

WASHINGTON -- The US government vows to follow international law scrupulously following a war with Iraq, and this applies to the handling of Iraq's oil sector. But the global decrees providing legal guidance contain gray areas that could leave Washington vulnerable to increased scrutiny and criticism. For example, the decrees do not specify who the US must hire to rebuild post-war Iraq's energy industry or where to buy the equipment. This makes it, technically, within the legal rights of the Bush Administration to hire US companies to rebuild Iraq after the possible US strike -- something the US has already begun by seeking bids to the tune of some $900 million and by expanding a current contract with Halliburton.

Notwithstanding the US's recent success in post-war Afghanistan, there is singular interest and concern over how the US will deal with Iraq in large part because of the Mideast nation's oil reserves of 112 billion barrels, the second largest in the world.

Secretary of State Colin Powell has said "We will follow religiously international law, which gives clear guidance with respect to the responsibilities of an occupying power, if it comes to that." But while international laws governing the rights and duties of an occupying power are explicit, the laws are silent on the occupying power's rights to make certain commercial decisions on how to use the immovable property, under which oil would fall, experts say.

R. Dobie Langenkamp, director of National Energy-Environmental Law and Policy Institute at the University of Tulsa College of Law and a former Department of Energy official, says that the selection of supplier and service companies to repair and operate Iraqi oil fields is not covered by international law. But even issues that are covered are open to dispute because of the multiple interpretations that any law allows, he adds.

The law is clear that if the US were to occupy Iraq, it could continue to produce oil from existing oil wells. But revenue from the oil must be used for the benefit of the local population. A case in point is the Japan's use of Dutch East Indies' (currently Indonesia) oil during the Second World War. A British court held that Japan could indeed take the oil, but ruled that it violated international laws by using it for general war purposes instead of using it, for example, to restore order by building infrastructure or providing food and schooling, Langenkamp says.

The Hague Convention of 1907 and the Geneva Convention of 1949, of which the US is party, spell out the duties and obligations of an occupying force and how noncombatants and private property should be protected. Protocol I and Protocol II expand on the Geneva Convention to address these issues, but the US is not party to these.

The US Department of the Army in 1956 codified The Hague and Geneva conventions together with customary law in "The Law of Land Warfare," and this is expected to serve as the guiding post for the US in a post-war Iraq. The US further clarified its position on oil and gas development by an occupying force in a 1976 memorandum of law after Israel's seizure of the Abu Rhodeis fields in the Sinai, following Israel's war with Egypt. The memo says that the occupying force cannot grant development concessions or sell the oil for its own benefit.

International law also requires occupying forces to respect private property rights. Since any contract oil companies have with the current Iraqi government would be considered a private property right, the US or any interim government would have to honor the contract.

"The general rule is a new government is bound by the legal obligation of the prior government," Sean Murphy, professor of International Law at the George Washington University noted. However, Murphy said the contracts that several European, Russian, and Asian oil companies now hold with Iraq would have to be analyzed to see whether they are binding. And the companies can also seek compensation if their contracts are not honored, Murphy said, pointing out that contracts with Western firms typically include an arbitration clause.

In its 1976 memorandum, the State Department argued in favor of Amoco, now part of BP, which enjoyed a concession granted by Egypt to develop oil fields. The agency said Israel must "respect the Amoco concessions as private property."

Under the law, the US Defense Department could secure and take control of Iraqi oil fields in the event of war, experts said. And the US will likely do just that, as it fears Iraqi leader Saddam Hussein might set the fields on fire, as he did to Kuwait's oil fields during the 1991 Gulf War. The US would be acting according to Protocol I of the Geneva Convention, which allows "action to prevent internationally significant environmental damage," Langenkamp said.

But, again, interpretations of the law can vary sharply. For instance, it was Israel's difference of opinion with the US on what constituted legal development of Egyptian oil fields in Sinai and West Bank that led to the 1976 memorandum. Israel argued that an occupying force was not restricted to producing oil from existing wells but could develop new wells as they would enhance the overall value of the asset.

Even a narrow interpretation of the State Department's memo leaves room for an occupying force to adhere strictly to the law while increasing production without actually drilling new wells, particularly with current technology, Langenkamp said. The US could inject water, carbon dioxide, or natural gas to enhance production or use directional drilling to tap existing and new fields.

The stickier issues in post-war Iraq, however, would be the occupying force's stance on Iraqi production levels and the country's place in Opec, as well as the choice of supply and service companies to rehabilitate Iraq's oil fields.

International law does not dictate how drilling contractors and other service companies should be hired nor whether an occupying force can ignore local firms and buy new drilling equipment from whomever it pleases. The Bush administration is preparing to award millions of dollars worth of construction contracts to rebuild Iraq even as the Defense Department last week announced that Kellogg Brown & Root -- a subsidiary of Halliburton, which was headed by Vice President Dick Cheney before the election -- would develop a plan to fight Iraqi oil well fires under its existing DOD contract.

Few details have emerged on how oil fields will be operated in a post-war scenario. US officials at a recent Senate hearing said the Bush administration has not decided how to operate Iraq's oil sector. But some congressional and industry sources are convinced that the United Nations must continue to have a role, with the current oil-for-food program continuing at least in the near term. Despite the aversion to war, France, Russia, and other countries could evince interest during an occupation largely to determine their contractual rights and other commercial opportunities.

Despite all this, international law's "Achilles heel" is enforcement. There is no enforcement mechanism for effective implementation of international laws, Langenkamp and other experts concede. More importantly, the US has not signed on to the International Criminal Court that formally came into being Tuesday, Mar. 11, primarily to deal with war crimes. But the US and the UK have a good war record compared to other countries, experts say.

"It is more a court of public opinion," says Murphy of the possibility of cracking down on the US for any violation. "The American public can be a persuasive force."

By Manimoli Dinesh

This story is part of Energy Intelligence Group's special Eye on Iraq series, providing intensified coverage in Energy Intelligence Briefing and our other publications of the rising tensions in the Middle East and Iraq and their implications for the global petroleum business.

(Copyright © 2003 Energy Intelligence Group, Inc.)