State Dept. Investigating Iraqi Oil Contracts

The State Department's inspector general is investigating Iraqi oil contracts after four Democratic senators complained that department employees may have encouraged lucrative oil deals between Iraq and several Western companies.

Any backstage meddling would have violated Bush administration policy, which has been to discourage such deals until Baghdad passes a law that will fairly divide the nation's oil resources among the various provinces.

A congressional official on Thursday confirmed the probe, speaking on condition of anonymity because it involved an investigation.

It comes about a week after four Democratic senators called on Harold Geisel, the State Department's acting inspector general, to investigate the matter.

"We are concerned that U.S. policy regarding these oil contracts has not been clearly defined, communicated or consistently implemented by the Iraqi government, the Kurdistan Regional Government and international oil companies seeking to do business in Iraq," Sens.

Carl Levin of Michigan, Chuck Schumer of New York, John Kerry of Massachusetts and Claire McCaskill of Missouri said in their July 16 letter.

In response, Geisel wrote back on July 22 and told the lawmakers he had "initiated a review of the responses provided to the Congress recently on the issues surrounding oil contracts, oil field development and U.S. policy in Iraq."

In early July, Levin asked Stephen Hadley, the president's national security adviser, to respond to news reports that State Department employees had advised Iraq on no-bid technical contracts.

His request followed one by Schumer, Kerry and McCaskill that Secretary of State Condoleezza Rice try to block any deals between Iraq and the oil companies, including U.S-based Exxon Mobil .

The Bush administration says its policy has been to discourage the deals, but suggests it has no plans to interfere.

"The United States government has stayed absolutely out of the matter of the awarding of Iraqi oil contracts," Rice said in June. "It's a private sector matter."

But according to a recent investigation by the House Oversight and Government Affairs Committee, the administration's policy was not expressed to at least one U.S. company.

And in some cases, State Department and other administration officials even encouraged an exploration deal between Texas-based Hunt Oil and Iraq's Kurdish government, according to e-mails released by the panel.