After US-led military strike, what happens with Iraq's oil?

R. Dobie Langenkamp
Director
National Energy-Environment Law & Policy Institute
"If we do go to war (against Iraq), and assuming a victory, what do we do then? Do we occupy? Do we assume control of petroleum operations? What rights and responsibilities do we have while we are there?"

Bob Lawson
Senior Editor-Technology

The new director of the University of Tulsa's National Energy-Environment Law & Policy Institute (NELPI) takes the helm at a pivotal point in the history of world oil markets.

The prospect of a US-led military campaign against Iraq has dominated the world's headlines for months now. But behind the rhetoric and scramble to prepare for war, many questions have surfaced concerning the country's oil reserves, which have been estimated at more than 100 billion bbl—second only to Saudi Arabia.

The questions that R. Dobie Langenkamp poses center on a single theme: What happens to that oil should the US and its allies oust Iraqi President Saddam Hussein and take control of the country?

Langenkamp, former deputy assistant secretary of the US Department of Energy and now a TU professor of law, has spent much of his career working with the US government in a variety of roles that have given him insight into international law, multinational contracts, and the economic rights of combatants.

He assumed the NELPI post last month. NELPI, created in 1976 as part of the TU College of Law, provides a curriculum and certificate program focusing on energy and environmental and natural resource law and policy.

Being prepared
Langenkamp has put together a list of questions that he says must be addressed if and when the US goes to war with Iraq.

He does not advocate war with Iraq but feels that if the US does go to war, the government must be prepared for the responsibilities that it brings—particularly with regard to Iraq's oil.

"If we do go to war, and assuming a victory," Langenkamp asks, "what do we do then? Do we occupy? Do we assume control of petroleum operations? What rights and responsibilities do we have while we are there?"

Langenkamp makes several assumptions: The US and allies would attack primarily through the air and use as many proxies (local people opposed to Saddam Hussein) as possible on the ground. Oil infrastructure would not be targeted.

"When the fighting is over and, assuming the US and its allies are in control," Langenkamp says, "international and US law, based on the Hague Convention of 1907 and the Geneva Convention, come into play."

Responsibilities
In the US, the Law of Land Warfare describes the obligations and the rights of the occupying power. These have significant implications regarding Iraq and its oil.

This law sets forth legal guidelines for any military occupation in which the US is involved.

The law is both specific and humane (e.g., the country's religion must be honored; pillaging is forbidden; citizens may not be made to swear allegiance to the occupying power; children must be protected and educated, etc.).

Most importantly, the occupying power is responsible for restoring order and public safety. It must get the country's infrastructure up and running as soon as possible. Although the phrase "nation-building" is not used, it is implied.

Rights
But it is the entitlements of the "belligerent occupant" that are most significant regarding questions over Iraq's oil.

"The occupying power has no right to take private property, unless the owners are compensated for it," says Langenkamp. "The occupying power, however, may take moveable public property to pay for the occupation. That includes the government's securities, cash, and bank accounts.

"In addition, the occupying power is specifically entitled to use without charge publicly owned real property, which includes the right to operate and take the proceeds of government-owned mines. This has been interpreted to encompass publicly owned existing oil and gas wells. The law is not clear on whether new wells may be drilled."

"During the Six Day War (between Israel and Egypt in 1967)," says Langenkamp, "Israel occupied Egyptian oil fields in the Sinai. Although existing wells were legally produced, additional wells were also drilled, an act which some legal scholars have contended was unlawful. The issue is unresolved. There were also unresolved questions raised regarding the use to which Israel put the proceeds."

A key restriction is that the use of the proceeds is limited to occupation purposes. In World War II, Japan occupied the Dutch East Indies and violated international law by using the proceeds from oil production there for general war purposes throughout the Japanese empire.

Iraqi oil
Iraq has huge reserves that dwarf its production. Iraq says it could increase its production capacity to 3.5 million b/d from 2.65 million b/d in a short time, and possibly as much as 6 million b/d.

"Occupation of Iraq," says Langenkamp, "raises some interesting questions about this oil."

Assuming the Iraqi National Oil Co. would be used on a day-to-day basis, he asks, who is the "operator?" That is, who decides which service companies get the contracts? Whose pipe is purchased? Who buys the oil, and at what price? Oil sales at current prices could amount to more than $40 million/day. And most important, who handles the money? Would there be any need for continuing the United Nations oil-for-aid program?

Under international law, the occupying powers not only have restoration obligations but would be entitled to the money from oil sales to pay for these obligations until a viable Iraqi government is established. But these proceeds would have to be spent for purposes such as health care, new roads and bridges, schools, airports, and communications. The actual costs of supporting the occupation army could also be paid.

"Interestingly," says Langenkamp, "it is a problem similar to (that of) Afghanistan, only in Iraq there should be funds to pay the expenses, assuming the oil fields are not significantly damaged."

Occupation decisions
"After a war," says Langenkamp, "there would be the issue of what to do with established foreign oil interests in Iraq. There are at least 20 non-Iraqi oil companies (that) have development contracts or concessions of some variety with Iraq today. This group of hopefuls includes the Russians, French, and Chinese, among others.

"Under international law, these rights—to the extent they are valid—must be protected. But how do the occupying powers respond when the Russians or French claim vested rights to operate or develop certain oil fields?

"Even assuming the occupying powers fully comply with international law regarding the use of oil proceeds for 'nation-building,' the commercial opportunities involving development rights, service contracts, and sales agreements are significant, to say the least, and could create considerable friction among the contenders for business in Iraq. Having undertaken the responsibility to conduct the war, can the occupying powers be denied a stake in the commercial opportunities?"

Langenkamp contends that post-Saddam oil field operations choices would best be made by the occupying powers assisted by state-owned Iraq National Oil Co. It is unlikely that these decisions at the early stages would be left to an Iraqi provisional government, although a case can be made for full UN involvement, he says, speculating that the establishment of a provisional Iraqi government could become tied up in broader power politics as various countries back their preferred factions.

Production concerns
Another issue is the resulting level of oil production, Langenkamp notes.

Substantial investment in Iraq's oil fields could result in much higher production, glutting the market, and putting pressure on the Organization of Petroleum Exporting Countries and the US oil industry.

"One of the most significant issues will be the timing of a termination of the occupation status and the empowerment of the new Iraqi government," Langenkamp says. "When should this new entity assume full control of the cash flow from the petroleum production?

"This control need not be simultaneous with acquisition of other powers. We should recall that the current Iraqi government, under the (oil for aid) regime, has no direct control over its oil proceeds."

Initially, the Iraqi government may be a fractious consortium of local tribal leaders and returned expatriates. Langenkamp imagines "another Afghanistan" but with even more scores to settle, plus a prize of oil billions. Experiences in the Middle East, Russia, and Africa suggest that assassinations, turmoil, and Swiss bank accounts are likely scenarios. The world would not be well served by a premature termination of the occupation, according to Langenkamp.

What is needed, should the invasion occur and play out in the expected manner, Langenkamp claims, is a well thought-out, patient, nation-building program such as that seen at the end of World War II with Japan.

"The occupying powers will have to be prepared for a whole new set of problems involving the handling of the Iraqi petroleum potential," says Langenkamp. "Although (President George W.) Bush and (Vice-Pres. Dick) Cheney's oil experience will be an asset in many respects, it might constitute a political liability as detractors use it to allege overreaching on the part of US petroleum interests."

Other occupations—the Rhineland in World War I and Berlin after World War II—show that the tensions between occupying powers can be intense even without huge economic interests. "One thing is clear," says Langenkamp, "the rights of the US and its allies as occupying powers under international law will collide with large power politics and the commercial interests of the many players.

"Of course, the US may find that assembling a significant coalition may be less difficult once the reality of the post-conflict era becomes clear."



Career highlights

R. Dobie Langenkamp is a professor of law and director of the University of Tulsa College of Law's National Energy-Environment Law & Policy Institute (NELPI). He was named director of NELPI last month after serving 2 years as deputy director and as a distinguished visiting professor of energy law. He lectures and writes on oil and gas and environmental law and domestic and international energy policy.

Work
Before joining the University of Tulsa, Langenkamp worked with the United States Agency for International Development as a consultant in Kazakhstan and the Republic of Georgia.

After 15 years as a trial lawyer, Langekamp served in the US Department of Energy as deputy assistant secretary for oil, natural gas, and shale resources and earlier as deputy assistant secretary, naval petroleum and oil shale reserves and divestment. Following government service, he owned and operated a petroleum exploration and production company, Cherokee Operating Co.

Education
Langenkamp received his undergraduate degree from Stanford University and JD from Harvard Law School.

Organizations
Langenkamp is chairman and trustee of the Oklahoma Ordnance Works Authority and trustee of the Oklahoma Nature Conservancy.

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