Executives from the world’s leading oil companies are flying to Baghdad today to place bids in the first auction of production contracts for Iraqi oil since the 2003 invasion.

Drawn by the promise of rich pickings from the world’s third-largest oil reserves, the multinationals, including BP, Royal Dutch Shell and ExxonMobil, will find themselves at the centre of a political row over the legality of the contract auction.

The bidding process and contract awards, which begin tomorrow, will be shown live on television, but the Iraqi Government’s plan to use the broadcast to deflect allegations of corruption has been undermined by a parliamentary committee, which said at the weekend that the proposed contract awards were illegal.

Nourriddine al-Hayali, an MP who is a member of the parliamentary oil and gas committee, said: “The current effective laws do not grant the Oil Minister the right to [award] contracts unless he gets the approval of the parliament first.”

Thirty-one companies are vying for contracts covering 43 billion barrels of crude hidden in some of the world’s largest untapped fields, an energy resource greater than the oil reserves of Nigeria or the United States. Long coveted by the multinationals, the prize has remained out of reach because of the failure of Iraq’s parliament to approve a legal regime to deal with foreign oil investment.

Adding to the political confusion has been the decision by the Kurdish Regional Government (KRG) to award oil licences to foreign companies without the consent of Baghdad. The recent start of oil exports to Turkey from the Kurdish region has inflamed political tension in Baghdad, where Hussein al-Shahristani, the Oil Minister, has been under fire because Iraq’s oil output, at two million barrels a day, is below pre-invasion levels.

Mr al-Shahristani said this month that existing laws would allow the Oil Ministry to approve contracts, but the parliamentary committee sent a memo to the President’s office on Saturday criticising the proposed contracts. Mr al-Hayali said that the auction would create friction between political blocs and added: “There is no legal cover for these contracts.”

South Oil, Iraq’s largest oil company, and an oil workers’ union claim that foreign companies would control 75 per cent of the technical responsibility for the country’s oilfields under the proposed agreements. Critics say that the tenders on offer are too long at 20 years and will surrender control of oilfields that are already in production.

A larger power struggle could threaten the development of the Kirkuk and Bai Hassan fields in disputed Kurdish territories. Royal Dutch Shell and ExxonMobil are vying for contracts to develop Kirkuk, one of Iraq’s oldest and largest fields, which contains eight billion barrels of crude and a huge volume of gas and has yet to be exploited.

The KRG maintains that Baghdad has no authority to offer rights to Kirkuk. “This auction is a violation of Iraq’s federal constitution,” Nechirvan Barzani, the Kurdish prime minister, wrote on the KRG website on Friday. “Any decision related to contracting for Kirkuk and Bai Hassan fields requires the direct involvement of the KRG as a party to the dispute. Regrettably, the KRG has not been involved.”

Others competing in the auction include Lukoil, of Russia, of India, Total, of France, and StatoilHydro, of Norway.

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