U.S. Adviser to Kurds Stands to Reap Oil Profits - NYTimes.com

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By JAMES GLANZ and WALTER GIBBS

OSLO — Peter W. Galbraith, an influential former American ambassador, is a powerful voice on Iraq who helped shape the views of policy makers like Joseph R. Biden Jr. and John Kerry. In the summer of 2005, he was also an adviser to the Kurdish regional government as Iraq wrote its Constitution — tough and sensitive talks not least because of issues like how Iraq would divide its vast oil wealth.

Now Mr. Galbraith, 58, son of the renowned economist John Kenneth Galbraith, stands to earn perhaps a hundred million or more dollars as a result of his closeness to the Kurds, his relations with a Norwegian oil company and constitutional provisions he helped the Kurds extract.

In the constitutional negotiations, he helped the Kurds ram through provisions that gave their region — rather than the central Baghdad government — sole authority over many of their internal affairs, including clauses that he maintains will give the Kurds virtually complete control over all new oil finds on their territory.

Mr. Galbraith, widely viewed in Washington as a smart and bold foreign policy expert, has always described himself as an unpaid adviser to the Kurds, although he has spoken in general terms about having business interests in Kurdistan, as the north of Iraq is known.

So it came as a shock to many last month when a group of Norwegian investigative journalists at the newspaper Dagens Naeringsliv began publishing documents linking Mr. Galbraith to a specific Norwegian oil company with major contracts in Iraq.

Interviews by The New York Times with more than a dozen current and former government and business officials in Norway, France, Iraq, the United States and elsewhere, along with legal records and other documents, reveal in considerable detail that he received rights to an enormous stake in at least one of Kurdistan’s oil fields in the spring of 2004.

As it turns out, Mr. Galbraith received the rights after he helped negotiate a potentially lucrative contract that allowed the Norwegian oil company DNO to drill for oil in the promising Dohuk region of Kurdistan, the interviews and documents show.

He says his actions were proper because he was at the time a private citizen deeply involved in Kurdish causes, both in business and policy.

When drillers struck oil in a rich new field called Tawke in December 2005, no one but a handful of government and business officials and members of Mr. Galbraith’s inner circle knew that the constitutional provisions he had pushed through only months earlier could enrich him so handsomely.

As the scope of Mr. Galbraith’s financial interests in Kurdistan become clear, they have the potential to inflame some of Iraqis’ deepest fears, including conspiracy theories that the true reason for the American invasion of their country was to take its oil. It may not help that outside Kurdistan, Mr. Galbraith’s influential view that Iraq should be broken up along ethnic lines is considered offensive to many Iraqis’ nationalism. Mr. Biden and Mr. Kerry, who have been influenced by Mr. Galbraith’s thinking but do not advocate such a partitioning of the country, were not aware of Mr. Galbraith’s oil dealings in Iraq, aides to both politicians say.

Some officials say that his financial ties could raise serious questions about the integrity of the constitutional negotiations themselves. “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 law that governed Iraq after the United States ceded control to an Iraqi government on June 28, 2004.

In effect, he said, the company “has a representative in the room, drafting.”

DNO’s chief executive, Helge Eide, confirmed that Mr. Galbraith helped negotiate the Tawke deal and advised the company during 2005. But Mr. Eide said that Mr. Galbraith acted solely as a political adviser and that the company never discussed the Constitution negotiations with him. “We certainly never did give any input, language or suggestions on the Constitution,” Mr. Eide said.

When the findings based on interviews by The Times and other research were presented to Mr. Galbraith last weekend, he responded in writing to The Times, confirming that he did work as a mediator between DNO and the Kurdish government until the oil contract was signed in the spring of 2004, and saying that he maintained an “ongoing business relationship” with the company throughout the constitutional negotiations in 2005 and later.

Mr. Galbraith says he held no official position in the United States or Iraq during this entire period and acted purely as a private citizen. He maintains that his largely undeclared dual role was entirely proper. He says that he was simply advocating positions that the Kurds had documented before his relationship with DNO even began.

“What is true is that I undertook business activities that were entirely consistent with my long-held policy views,” Mr. Galbraith said in his response. “I believe my work with DNO (and other companies) helped create the Kurdistan oil industry which helps provide Kurdistan an economic base for the autonomy its people almost unanimously desire.”

“So, while I may have had interests, I see no conflict,” Mr. Galbraith said.

Kurdish officials said that they were informed of Mr. Galbraith’s work for DNO and that they still considered him a friend and advocate. Mr. Galbraith said that during his work on the Constitution negotiations, the Kurds “did not pay me and they knew I was being paid by DNO.”

Mr. Istrabadi, who was also the Iraqi ambassador to the United Nations from 2004 to 2007, said the case was especially troubling given the influence of Mr. Galbraith’s policy views. In his writings — some of them on the Op-Ed page of The Times and in the New York Review of Books — he is generally identified as a former ambassador or with some other generic description that gives no insight into his business interests in the area.

Mr. Galbraith, for many years on the staff of the Senate Foreign Relations Committee, has a long relationship with the Kurds. In 1988, he documented Saddam Hussein’s systematic campaign against the Kurds, including the use of gas. He served as United States ambassador to Croatia between 1993 and 1998. In September, he was fired as the No. 2 official with the United Nations mission in Afghanistan after he accused the head of the mission of concealing allegations of electoral fraud.

Views of Mr. Galbraith’s business ties are harsh within the central Baghdad government, which has long maintained, in stark opposition to Mr. Galbraith’s interpretation of the Constitution, that all the oil contracts signed by the Kurdish government were illegal.

Referring to the Constitution negotiations, Abdul-Hadi al-Hassani, vice chairman of the oil and gas committee in the Iraqi Parliament, said that Mr. Galbraith’s “interference was not justified, illegal and not right, particularly because he is involved in a company where his financial interests have been merged with the political interest.”

Citing what he said were confidentiality agreements, Mr. Galbraith refused to give details of his financial arrangement with the company, and the precise nature of his compensation remains unknown. But several officials, including Mr. Galbraith’s business partner in the deal, the Norwegian businessman Endre Rosjo, said that in addition to whatever consulting fees the company paid, he and Mr. Galbraith were together granted rights to 10 percent of the large Tawke field and possibly others.

An internal DNO document dated Dec. 3, 2006, which was first obtained by Dagens Naeringsliv, indicates that a company called Porcupine, registered in Delaware under Mr. Galbraith’s name, still held the rights to the 5 percent stake at that time, while a company associated with Mr. Rosjo held the other 5 percent.

Mr. Eide, the DNO executive, said that as far as the company knew, Mr. Galbraith’s work was proper.

“To our knowledge, Mr. Galbraith in 2004 was working as a businessman with no political assignments,” Mr. Eide said. “Given our network model and limited experience and knowledge from the region at that time, our evaluation concluded that we should use Mr. Galbraith to advise DNO in the first stage of the project.”

As revelations began appearing in recent weeks, Mr. Galbraith at first issued qualified denials stating that he had never been party to any arrangement in Iraq technically referred to in the oil industry as a production-sharing contract. But industry insiders say that the rights could have been couched in different terms — not an ownership stake, but a conditional right or option to become part of such an agreement at a future date.

Estimating the value of any stake in the Kurdish fields is difficult given the political uncertainties. But Are Martin Berntzen, an oil analyst at Oslo’s First Securities brokerage, said the Tawke field alone has proven reserves of about 230 million barrels, a figure likely to increase as new wells are drilled.

“Given no political risk, a 5 percent stake should be worth at least $115 million,” he said, though he emphasized that he knew nothing about Mr. Galbraith’s arrangement.

A possible indication of Mr. Galbraith’s estimate of the deal’s worth may be discerned in a London arbitration case in which Porcupine and a Yemeni investor who now apparently holds Mr. Rosjo’s former share are seeking more than $525 million from DNO, according to a filing reported on the legal news Web site Law.com. Oil analysts in Norway played down the likelihood of a reward as large as the claim.

According to DNO, the claim represents up to 10 percent of the value of the regional production contract, which the Norwegian oil firm now shares with a Turkish energy company after Kurdish authorities reviewed the previous deal and barred “certain third-party interests” from participating further. At a shareholders meeting on Wednesday, Mr. Eide refused to name Mr. Galbraith as a claimant in the case. He acknowledged, however, that DNO lost a procedural ruling in the case last May, and he said a final decision on damages was expected in early 2010.

In his response, Mr. Galbraith would say only that “my contractual relationship was with DNO and is the subject of pending arbitration.”

Mohammed Hussein contributed reporting from Baghdad, and David E. Sanger from Washington.