Iraq: Peter Galbraith scandal opens window on oil struggle
A front-page New York Times story Nov. 12 brings to light that veteran US diplomat Peter W. Galbraith, "a powerful voice on Iraq who helped shape the views of policy makers like Joseph R. Biden Jr. and John Kerry," stands to gain hundreds of thousands of dollars from oil contracts in Iraqi Kurdistan—thanks to broad Kurdish autonomy and control of subsoil resources that he helped craft and negotiate as an advisor to the Kurdish regional government as Iraq drafted its constitution.
Galbraith received the oil rights after he helped negotiate a potentially lucrative contract that allowed the Norwegian oil company DNO to drill in the promising Dohuk region of Iraqi Kurdistan, documents obtained by the Times indicate.
Galbraith insist his actions were proper, but many Iraqis are aghast at the revelations. "The idea that an oil company was participating in the drafting of the Iraqi Constitution leaves me speechless," said Feisal Amin al-Istrabadi, a principal drafter of the provisional legal code that governed Iraq after the US ceded control to an Iraqi government in June 2004.
An internal DNO document dated Dec. 3, 2006, first obtained by the Norwegian paper Dagens Naeringsliv, indicates that a company called Porcupine, registered in Delaware under Galbraith's name, still held the rights to the 5% stake at that time, while a company associated with Galbraith's Norwegian partner Endre Rosjo held another 5%. Galbraith and Rosjo were together granted the 10% as a consulting fee.
Journalist Ben Lando of Iraq Oil Report covered the imbroglio on Oct. 15:
In June 2004, a few months after Galbraith advised Iraq's Kurdish leadership on how to secure autonomy over its land—and oil—from Baghdad's long-time grip, his newly formed company signed up as a player in an oil contract in the Kurdish region.
The company, Porcupine LP, is now in a London arbitration dispute with Norway's DNO, which is pumping oil from a field controlled by the Kurdistan Regional Government (KRG). Galbraith's role in Kurdish oil has just surfaced, though, and criticism followed.
The former Ambassador and player in forming Iraq's post-Saddam charter documents told Iraq Oil Report it's a matter of symbiotic economics and ideology.
"My work in attracting inward investment into Kurdistan, including DNO, was consistent with Kurdistan's political and economic objectives," he said. "The KRG, of course, knew about my business relationship with DNO."
Almost a year after the US-led invasion of Iraq, the Transitional Administrative Law was formalized as a stop-gap between the end of America's Coalition Provisional Authority and the creation of an elected government and new constitution.
Galbraith advised Iraq's Kurds and wrote a chapter for Kurdish autonomy which was proposed for inclusion in the TAL.
"The Kurds did not succeed in getting this provision into the TAL but it became the substance of the autonomy provisions in the permanent Constitution," he said. "As noted, the advice I gave on the constitution was identical to that of the TAL."
The TAL was approved March 2004, three months before the DNO deal. The Constitution was approved in October 2005.
Galbraith has been an aggressive advocate for the Kurds and promoter of Kurdish independence—most prominently in his book The End of Iraq, lectures, articles in the New York Review of Books and testimony to Congress. He has been a foremost advocate of the so-called "three-state solution" for Iraq. But Galbraith told Lando: "My views on the three-state solution were expressed before I had any business relationships with DNO."
The New York Times, on the editorial page of the edition the day after the front-page story, Nov. 13, ran an "Editor's Note" admitting: "Mr. Galbraith has written several opinion articles for the Op-Ed page in support of Kurdish independence and security. These articles should have disclosed to readers that Mr. Galbraith could benefit financially from an independent Kurdistan that would not have to share oil revenues with Iraq."
The same day the story hit the front page of the Times, Galbraith defended himself before an audeince in Vermont, where the Brattleboro Reformer reported his comments:
If you talk to a majority of the Kurdish people, they say the oil under their feet is a curse because it has given former Iraqi leaders the financial means to kill them, said Galbraith. By having their own natural resources, the Kurds have a vehicle to defend themselves against future attacks, he added.
"I make no apologies for my role here... at that time, I was a private citizen. Private citizens engage in business, that's what I did."
This first point is valid—the Kurds are entitled to struggle for control of their territory's subsoil resources. The second point—that Galbraith acted innocently as a "private citizen"—is dubious. Do "private citizens" serve as advisors to regional governments?
On Oct. 12, the New York Times reported on the ongoing conflict between Baghdad and KRG over control of the region's oil ("Kurdistan Halts Oil Exports," emphasis added):
BAGHDAD — The semiautonomous Kurdish region has reopened a rift with the central government after announcing that it had halted all petroleum exports from Kurdistan until Baghdad pays the international companies that are pumping oil in the region.
Oil extracted in Kurdistan can be exported only through Iraqi government pipelines running to Turkey, giving Baghdad a stranglehold on the transport of oil produced there. At the same time, the government needs all the revenue it can get to pay for a host of pressing needs.
The amount of oil involved currently, about 100,000 barrels a day, is relatively small compared with Iraq's total production of 2.4 million barrels a day. But with production from the Kurdish areas likely to increase markedly in coming years, the dispute has taken on added importance.
Kurdistan’s minister of natural resources, Ashti Hawrami, said in a letter dated Oct. 9 and posted on the Kurdish government's Web site Monday that the decision to stop exports had been made in concert with the two international companies now extracting oil there.
"We have jointly agreed that no free oil will be pumped for export, and payments have to be made," Dr. Hawrami wrote in the letter. "We will only resume exports with guaranteed payments."
What this means is that the KRG has signed contracts unilaterally with some small oil companies, but the only means of exporting the oil is through the Kirkuk-Ceyhan pipeline, which is controlled by the central government. Baghdad does not recognize the contracts and is therefore not paying for the oil—even though it is selling it abroad.
Kurdistan has awarded more than 30 contracts to international oil companies during the past few years over the objections of Baghdad, which has barred international companies working in Kurdistan from competing for oil contracts in the rest of Iraq.
Kurdistan began signing its own deals with foreign oil companies after becoming impatient with the central government's inability to adopt a national oil law that would regulate the industry. The Iraqi Parliament still has not approved an oil law, but earlier this year Baghdad began seeking oil production deals of its own with international companies, including a preliminary agreement with a consortium of British Petroleum and the Chinese National Petroleum Company to develop the enormous Rumalia field in southern Iraq.
After DNO, a Norwegian company, and Genel Energy, a Turkish company, struck oil at the Tawke field in Kurdistan this year, Baghdad originally refused to export their production over its pipelines. The cash-poor government eventually relented, however, giving its approval in late May.
Exports from Tawke and from a second site in Kurdistan, at the Taq Taq field, started June 1, but Baghdad has refused to pay the companies for the oil because it continues to regard their contracts with Kurdistan as illegal...
DNO has a 55 percent share in the Tawke field; Genel Energy owns 25 percent; the remainder is owned by the Kurdish government.
Dr. Hawrami, who oversees Kurdistan's oil sector, said the Norwegian and Turkish companies, which had invested $500 million in Kurdistan, had not received a penny so far for their exports.
Khalid Saleh, an adviser to Hussain al-Shahristani, Iraq's oil minister, confirmed Monday that oil exports from Kurdistan had stopped. He said the government had no plans to abide by the terms of the Kurdish contracts.
"At this moment, the government is not willing to pay," he said.
The Kurds' legitimate aspirations for self-determination have for over a century been manipulated and exploited by the Great Powers in the game for control of the region and its strategic oil wealth. It could be a Pyrrhic victory if Iraq's Kurds finally manage to free themselves from Bahgdad only to become the wards of international oil companies.
See our last posts on the the Kurds, Iraq and the struggle for the oil.
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Galbraith made a completely wooden denial on NPR, stating that he hadn't directly negotiated the oil deals and that his interest in the oil company was well known, expected even. The number given for his profit was in the hundreds of millions of dollars, and he did not take issue with this estimate.