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Shell to Get First Slice of Iraq Energy Business

Amid cries of protest from antiwar groups and senior Iraqis, Royal Dutch Shell and the Iraqi government recently signed a deal that will enable Shell to supply liquefied natural gas (LNG) to local markets and probably to Britain as well. This is only the second deal of this magnitude involving a foreign company since the invasion of Iraq in 2003, and the first time since 1973 that a Western energy company has gotten a significant slice of Iraq's huge energy pie since the 1970s.

The deal gives Shell, under a joint venture with Iraq's South Gas Company, the right to drill and produce natural gas from the Basra region in return for a $4 billion investment. That's pretty small change for Shell given that the investment could be worth ten times that or more in years to come. The South Gas Company and Shell respectively hold 51 percent and 49 percent stakes in the venture.

So, why the protest? The main reason is that there was no competitive-tendering process for this deal, fueling the deeply held suspicion among antiwar groups that the war was fought for oil in the first place. Senior Iraqis are also rankled by the possibility that Shell got the job too cheaply. In any case, the deal is done, and with luck some of the wealth generated by the venture will filter to the local economy.

This is by no means the end of such dealmaking. An October 13 meeting in London involving the Iraqi Oil Ministry will doubtless mean major contracts for major energy companies -- especially those that hail from nations that supported U.S. efforts in Iraq. As the old maxim has it, "you have to be in it to win it."

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