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Iraq Report: It’s About the Oil

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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.”