Iraq Report: It’s About the Oil

‘Crude Designs’ reveals bonanza for the oil industry

WASHINGTON, D.C.—The bottom-line issue in the Iraq war is not establishing democracy or assuring state security, but rather controlling the country’s oil reserves.

A new report called Crude Designs: The Rip-Off of Iraq’s Oil Wealth, prepared by a British consortium, reports that oil deals involving Iraq will be a bonanza for American and other Western companies. Iraq is expected to retain ownership of only 17 out of some 80 known oil fields, and these fields probably will end up under regional—not national—control.

”Crude Designs” (find an HTML version here) calculates the effects this way:

”At an oil price of $40 a barrel, Iraq stands to lose between $74 billion and $194 billion over the lifetime of the proposed contracts. . . .
”Under the likely terms of the contracts, oil company rates of return from investing in Iraq would range from 42% to 162%, far in excess of usual industry minimum target of around 12% return on investment.

Current contract negotiations between Iraq and the big oil companies will result in the country literally signing away rights to its oil. Once these deals are done, we can declare victory. Whether troops stay there or are redeployed is of secondary importance.

Iraqi oil is to be developed through a system of Production Sharing Agreements, under which the national government retains nominal ownership of the resource, while giving up real control over development, production, and distribution to foreign companies. The nation is to hold parliamentary elections on December 15, but it may be too late for the Iraqi people to control their country’s greatest resource.

Greg Muttitt, the author and lead researcher of "Crude Designs," released this statement:

"The form of contracts being promoted is the most expensive and undemocratic option available. . . .
The new Iraqi constitution opened the way for much greater foreign involvement in Iraq's oilfields. Negotiations with oil companies are already underway, ahead of elections in December and prior to the passing of a new Petroleum Law.”

The PSA technique usually allows for easy repatriation of profits. Disputes are often resolved in international courts, not in Iraq. National laws do not pertain. If the industry is broken up and placed under regional control, as is anticipated, that will mean the central government becomes much weaker and less able to forcefully negotiate in the future. Regions, like states in the U.S., will be much more amenable to industry wishes.

Iraq was colonized by the West because of its oil. In theory, an American victory in war was to provide the newly freed Iraq oil profits to finance a self-sustainable democratic state. Moreover, American influence in Iraq could effectively counterbalance OPEC policies. And finally, increased supplies of oil from Iraq could mitigate our own energy crisis.

”Crude Designs” suggests a ways those ideals could still be met:

“Iraq has a range of less damaging and expensive options for generating investment in its oil sector. These include: financing oil development through government budgetary expenditure (as is currently the case), using future oil flows as collateral to borrow money, or using international oil companies through shorter-term, less restrictive and less lucrative contracts than PSAs.”
 
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