Report outlines plans for corporate plunder of Iraqi oil

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Thu, 08 Dec 2005 05:43:51 -0800

[Zepps_News] Report outlines plans for corporate plunder of

Iraqi oil

 

 

 

 

http://www.wsws.org/articles/2005/dec2005/oil-d08.shtml

 

 

 

Report outlines plans for corporate plunder of Iraqi oil

 

 

By James Cogan

8 December 2005

 

 

 

A report published in November by the London-based environmental and

social justice network Platform makes clear that the invasion and

occupation of Iraq was, and remains, a war for oil. The document,

entitled " Crude Designs: the rip-off of Iraq's oil wealth " , is a

concise review of how Iraq's vast energy resources, worth hundreds of

billions of dollars, will be handed to transnational companies over

the next several years.

 

" Crude Designs " found that if just 12 of Iraq's undeveloped fields are

contracted in a similar fashion to comparable oil fields in Libya,

Oman and Russia, transnationals will reap profits of between $74

billion and $194 billion in 2006 dollars over a 30-year period. The

estimate, which the report describes as " conservative " , is based on an

oil price of $40 per barrel. The current price is closer to $60 per

barrel.

 

The actual bonanza for the oil giants from the invasion of Iraq could

run into the trillions. Out of the country's 80 known fields, just 17

are currently in production. A further 63 undeveloped fields have an

estimated 75 billion barrels of oil, while industry experts believe

between 100 billion and 200 billion barrels lie in unexplored fields.

The country also has enormous untapped reserves of natural gas.

 

The Platform report establishes that control over these resources was

the primary motive for the war. The first chapter draws attention to

the discussion in US and British ruling circles on the strategic

importance of dominating the oil and gas of the Persian Gulf. It cites

the May 2001 report of the Bush administration's Energy Task Force,

which was headed by Vice President Dick Cheney. The findings declared:

" The Gulf will be the primary focus of US international energy policy. "

 

The terror attacks on New York and Washington on September 11, 2001,

just four months later, were used to set in motion long-held plans for

the military conquest of the region.

 

In the months before the March 20, 2003 invasion, the looting of

Iraq's oil was the key consideration in Washington. The US State

Department established a " Future of Iraq " project as early as April

2002. The project's Oil and Energy group decided in four meetings

between December 2002 and April 2003 that Iraq's oil industry " should

be opened to international oil companies as quickly as possible after

the war " .

 

Among the group's participants was Ibrahim al-Uloum, an Iraqi exile

with a PhD in petroleum engineering from New Mexico University.

Al-Uloum was appointed oil minister in the US-controlled Coalition

Provisional Authority (CPA) and, with US backing, fills the same post

in the current " transitional " government of Prime Minister Ibrahim

al-Jaafari. The reason for Washington's support is not hard to

explain. In September 2003, Uloum told the British-based /Financial

Times/ that American energy companies should have " priority " over

Iraqi oil fields.

 

The contractual form agreed on by the US experts and Iraqi exiles for

the development of Iraq's oil industry was the Production Sharing

Agreement (PSA).

 

Platform characterises PSAs as an " ingenious arrangement " . They were

first introduced in the 1960s as a means for circumventing

constitutional obstacles or political opposition to the privatisation

of nationalised oil industries. Under a PSA, the oil remains legally

the possession of the state where it is extracted. Only the operation

of the field is controlled by the foreign operator, generally for a

period of 25 to 40 years.

 

PSAs have proven to be a far more lucrative form of contract for

transnational energy conglomerates than royalty arrangements. Under

most royalty deals, the state takes a fixed percentage of the value of

each barrel of oil extracted, regardless of the company's costs or

profit margin. Under a PSA, because the state still ostensibly " owns "

the oil, the revenue from sales is firstly used to pay the company in

full for its exploration, production and other capital costs. The

remaining profits are split between the state and the company,

according to an agreed ratio.

 

The profit split generally appears to be to the advantage of the state

with ratios of 60:40 or even higher. The companies, however, are

guaranteed a return, as all their costs are covered before any

profit-sharing begins. Moreover, they can increase their share of the

total revenue by inflating their costs or by subcontracting work to

their own subsidiaries.

 

A PSA contract can also contain clauses that overtly advantage the

company. One such PSA was signed by the Russian government during the

1990s. The agreement, which gave Shell control of the Sakhalin II

project near Sakhalin Island in Russia's Far East, stipulated that the

Russian government would receive no share at all until the company had

achieved a specified profit margin.

 

Moreover, the Platform report notes that a PSA can specify that any

disputes be resolved in international tribunals such as the US-based

International Centre for the Settlement of Investment Disputes or the

French-based International Chamber of Commerce. These bodies are

controlled by the major powers rather than the nation-state where the

oil is being extracted.

 

Summing up the essential characteristic of a PSA, a British academic

cited by Platform wrote: " The government can be seen to be running the

show—and the company can run it behind the camouflage of legal title

symbolising the assertion of national sovereignty. "

 

*Naked corporate plunder*

 

The decision by the US occupation to apply this PSA model to Iraq

amounts to naked corporate plunder. While common in countries that do

not possess large reserves of oil and gas, or where the cost of the

development of fields is substantial—such as offshore oil wells—PSAs

are virtually unheard of in large oil-producing states like Iraq. Such

nations either exploit their energy resources directly or use their

bargaining power to negotiate far more equitable contracts.

 

Platform points out that of the seven largest oil producers—Saudi

Arabia, Iran, Kuwait, Iraq, the United Arab Emirates, Venezuela and

Russia, which collectively sit on top of 72 percent of the world's

known reserves—only Russia has ever signed PSAs. During the first

stage of capitalist restoration in the 1990s, when the Stalinist

regime literally liquidated the state-owned assets of the former

Soviet Union, Moscow entered three such agreements. All have cost the

Russian state billions of dollars in lost revenues and are the subject

of bitter recriminations.

 

The most expansive period in the history of the Iraqi oil industry was

between 1970 and 1979. Financed directly by the government, the

state-owned Iraqi National Oil Company increased production from 1.5

million barrels per day to 3.7 million barrels per day, and explored

eight of the largest new fields that still have not been developed.

 

Iraq's new constitution, however, was written by US officials and

Iraqi collaborators with the occupation to exclude any possibility of

this being repeated.

 

The clauses referring to oil and gas establish the legal mechanisms

for PSAs. Article 108 proscribes the direct privatisation of the

energy resources by declaring that oil and gas " are the ownership of

all the people of Iraq in all the regions and governorates " . Clause

two of Article 109, however, stipulates that the different branches of

Iraq's government " formulate the necessary strategic policies to

develop the oil and gas wealth in a way that achieves the highest

benefit to the Iraqi people /using the most advanced techniques of

market principles and encourages investment/ " (emphasis added).

 

Under PSAs, the transnational companies will not " own " Iraq's oil and

gas. Rather, they will develop the reserves according to " market

principles " on the basis of one-sided contracts that " encourage

investment " .

 

Furthermore, the first clause of Article 109 stipulates that the Iraqi

federal government only has authority over the " management of oil and

gas extracted from current fields " . Article 111 declares that " all

powers not stipulated in the exclusive authorities of the federal

government shall be the powers of the regions and governorates " . The

implication is that the federal government will control the 17

currently producing fields, while the 63 undeveloped fields, as well

as any new discoveries, will be under the jurisdiction of the regions

and provinces.

 

In other words, PSAs can be signed for the exploitation of new fields

with regional governments such as the Kurdish Regional Government

(KRG) in northern Iraq, or the provincial governments in the

predominantly Shiite Arab and oil-rich south. The Platform report

notes that of the 25 new fields named by the Iraqi Ministry of Oil in

1995 for " priority development " , 11 were in the south, 11 in the north

and just 4 were in the central region.

 

The constitution was ratified by referendum on October 15. Significant

portions of Iraq's oil can therefore be hived off to transnational

energy giants regardless of who makes up the government in Baghdad

after the elections on December 15, or how long the anti-occupation

insurgency continues in the predominantly Sunni Arab provinces of

central Iraq.

 

Last week, this process began. The KRG announced that drilling had

begun on the Tawke field in northern Iraq on the basis of a PSA signed

with the Norwegian company DNO in June 2004. The agreement gives 60

percent profit to the Kurdish region and 40 percent to the company.

The project is the first oil development by a foreign company in Iraq

for 20 years.

 

A veritable rush of PSAs can be expected over the coming period, with

the terms likely to be even more favourable to the transnational

companies than anything seen elsewhere.

 

" Crude Designs " states: " The key issue here is bargaining power. The

Iraqi state is new and weak, and damaged by ongoing violence and by

corruption, and the country is still under military occupation ... the

oil companies will inevitably wish to focus on the current security

situation to push for a deal comparable to—or better than—that in

other countries in the world, while downplaying the huge reserves and

low production costs that make Iraq an irresistible investment. "

 

The report points to a blatantly neo-colonial contractual clause that

is likely to be inserted into PSAs on the demand of the US and other

occupying powers—a stipulation against government interference over

oil production rates.

 

Platform observes: " Iraq would not be able to control the depletion

rate of its oil resources—as an oil dependent country, the depletion

rate is absolutely key to Iraq's development strategy, but would be

largely out of the government's control. Unable to hold back foreign

companies' production rates, Iraq would also be likely to have

difficulty complying with OPEC (Organisation of Petroleum Exporting

Countries) quotas which would harm Iraq's position within OPEC and

potentially the effectiveness of OPEC itself. "

 

A key objective of the major powers since the oil crisis of the 1970s

has been to shatter the ability of the main oil-producing states to

ever again ration world oil supplies.

 

In the lead-up to the March 2003 invasion, the propaganda of the Bush

administration and its international allies was that the war was

motivated by the need to eliminate the threat posed by Iraq's " weapons

of mass destruction " , particularly its alleged efforts to acquire

nuclear weapons. The invading powers also claimed to possess evidence

of links between the regime of Saddam Hussein and the Al Qaeda

terrorist network.

 

These lies were the justification for a predatory and illegal war.

While Platform did not dwell on the report's political implications,

" Crude Designs " provides ample data to underscore that the unanimity

in the American political establishment that the occupation of Iraq

must continue is bound up with vital economic and strategic interests

of the most powerful sections of the American corporate and financial

elite.

 

" Crude Designs: The rip-off of Iraq's oil wealth " is available in html

and PDF format from Platform's /Unravelling the Carbon Web

http://www.carbonweb.org/crudedesigns.htm

 

 

 

--

" Intelligent Design " is just an effort by Republicans to pass

George W.'s resemblence to a chimpanzee as being nothing but

coincidence

 

Not dead, in jail, or a slave? Thank a liberal!

Pay your taxes so the rich don't have to.

 

 

 

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