The Report
of the Iraq Inquiry
constrained
by the Transitional Administrative Law (TAL) in its ability to make
decisions
affecting
Iraq’s “long-term destiny”. Key strategic decisions were therefore
unlikely to be
taken until
after January 2005.
429.
The Strategy
stated that to meet the UK’s objectives, the main challenge for
Iraq’s
oil
industry would be to institute the structural, fiscal and
regulatory reform needed to
attract
foreign direct investment (FDI). In the absence of a “very high”
oil price, Iraq
would only
be able to finance the investment necessary to raise production if
it achieved
a very
generous debt relief deal and was prepared to cut government
spending in other
areas. As
the latter was “not realistic”, Iraq would need FDI.
430.
Improved
governance in the energy sector also remained key to achieving the
UK’s
objectives.
431.
The Strategy
stated that the argument that Iraq’s energy development needs
were
best served
by FDI would be politically sensitive, both in Iraq (where it would
touch
on issues
of sovereignty) and internationally. The Iraqi Government was aware
of the
scale of
funding needed, but “less convinced” of the need for this to come
through FDI.
The Strategy
concluded:
“We will
wish to push the message on FDI to the Iraqis in private, but it
will require
careful
handling to avoid the impression that we are trying to push the
Iraqis down
one
particular path.”
432.
The Strategy
also set out the “key considerations” that shaped it:
•
the UK’s
objectives on energy security: Iraq had the second or third
largest
proven oil
reserves in the world, and significant reserves of natural
gas;
sustainable
increases in Iraqi oil and gas production would contribute to
global
energy
security;
•
the UK’s
commercial objectives; and
•
Iraq’s need
for fiscal stability, in particular given its high level of debt
and the
continuing
need to finance reconstruction.
433.
The Inquiry
has seen no indications that the Strategy was seen by Ministers
or
senior
officials.
434.
A junior
official at the British Embassy Baghdad reported on 8
September
that Prime
Minister Allawi had recently issued ‘Guidelines on Petroleum
Policy’
438