The Report
of the Iraq Inquiry
326.
Ambassador
Bremer signed CPA Order No.39 on 19 September.176
The
Order
allowed for
100 percent foreign participation in business entities in
Iraq:
“… except
that foreign direct and indirect ownership of the natural resources
sector
involving
primary extraction and initial processing remains
prohibited.”
In late
July 2003, the London Middle East Institute produced a study on the
political
economy of
oil and democracy-building in Iraq, which had been commissioned by
the
Department
for International Development (DFID).177
A junior
DFID official circulated the study to DFID and Treasury officials
only on 31 July.
He advised
that the study evaluated a range of options for the allocation of
oil revenues
and the
ownership of the oil industry. A central message from the study was
that any
arrangement
would have long-term political, economic and social implications.
There were
no
“risk-free” options.
The
official highlighted a number of the study’s conclusions,
including:
•
a “cautious,
incremental” approach to unbundling upstream production
and
downstream
distribution systems to create a deconcentrated ownership
structure,
which could
eventually be incorporated into a graduated privatisation
process,
was
preferable to “rapid privatisation”; and
•
while
production-sharing agreements (PSAs) might be economically
attractive in
terms of
mobilising capital and technology, they were unlikely to have
“positive
distributional
benefits” and might constrain future political
development.
327.
By August, the
US was focusing its efforts on increasing oil production. The
UK
believed
there was also a need to develop sector policy and strategy. The US
rebuffed
UK attempts
to provide an oil policy expert.
328.
The DTI
provided an update on the oil sector to the 7 August meeting of
the
329.
The DTI
reported that oil production, hampered mainly by sabotage and
power
shortages,
was between 1m and 1.2m bpd – still less than half pre-conflict
levels.
Despite
significant imports, refined petroleum products, gasoline, petrol
and gas for
cooking and
heating remained in short supply.
330.
The CPA Oil
Team was focused on restoring oil production to pre-conflict
levels,
leaving all
other issues to the Iraqi authorities. The UK believed that there
was a need
176
Coalition
Provisional Authority, Order No.39, 19 September 2003,
Foreign
Investment.
177
Minute DFID
[junior official] to DFID [junior official], 31 July 2003, ‘Study
on the Political Economy of
Oil and
Democracy Building in Iraq’ attaching Report, 24 July 2003, ‘The
Political Economy of Oil and
Democracy
Building in Iraq’.
178
Annotated
Agenda, 7 August 2003, Ad Hoc Group on Iraq Rehabilitation meeting
attaching Paper DTI,
6 August
2003, ‘Iraqi Oil Sector Update 07 August 03’.
422