The Bush administration’s covert plan to help energy companies steal Iraq’s oil could be just weeks away from fruition, and the implications are staggering: continued price-gouging by Big Oil, increased subjugation of the Iraqi people, more US troops in Iraq, and a greater likelihood for a US invasion of Iran.
That’s just for starters.
The administration’s challenge has been how to transfer Iraq’s oil assets to private companies under the cloak of legitimacy, yet simultaneously keep prices inflated.
But Bush & Co. and their Big Oil cronies might have found a simple yet devious solution: production sharing agreements (PSAs).
Here’s how PSAs work. In return for investment in areas where fields are small and results are uncertain, governments occasionally grant oil companies sweetheart deals guaranteeing high profit margins and protection from exploration risks. The country officially retains ownership of its oil resources, but the contractual agreements are often so rigid and severe that in practical terms, it can be the equivalent of giving away the deed to the farm.
Since Iraq sits on the world’s third largest oil reserves, the PSA model makes little sense in the first place; Iraq’s fields are enormous and the exploration risks are accordingly miniscule, so direct national investment or more equitable forms of foreign investment would be in order. But as a comprehensive new report by the London-based advocacy group PLATFORM details, the PSA model “is on course to be adopted in Iraq, soon after the December elections, with no public debate and at enormous potential cost.”
PLATFORM’s “Crude Designs: The Rip-off of Iraq’s Oil Wealth” points out that the proposed agreements (with US State Department origins) will prove a bonanza for oil companies but a disaster for the Iraqi people:
* “At an oil price of $40 per barrel, Iraq stands to lose between $74 billion and $194 billion over the lifetime of the proposed contracts, from only the first 12 oilfields to be developed. These estimates, based on conservative assumptions, represent between two and seven times the current Iraqi government budget.”
* “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.”
Of course, given the current political chaos, Iraqi citizens have little power over whether their politicians sign the proposed PSA agreements. That critical decision could be left to con-men like the former Interim Oil Minister Ahmad Chalabi, who recently met with no less than Cheney, Rumsfeld and Rice during his red-carpet visit to the White House. One can assume the topic of Iraq’s proposed PSAs came up more than once.
Chalabi’s successor as Oil Minister, Ibrahim Mohammad Bahr al-Uloum, is expected to toe the corporate line, and Iraq’s former Interim Prime Minister Iyad Allawi issued post-invasion guidelines stating: “The Iraqi authorities should not spend time negotiating the best possible deals with the oil companies; instead they should proceed quickly, agreeing to whatever terms the companies will accept, with a possibility of renegotiation later.”
But PSAs are notoriously hard to renegotiate. According to PLATFORM, “under PSAs future Iraqi governments would be prevented from changing tax rates or introducing stricter laws or regulations relating to labour standards, workplace safety, community relations, environment or other issues.” The Iraqi people would be locked into inflexible agreements spanning 25-40 years with disputes solved by corporate-friendly international arbitration tribunals, rather than by national courts.
Is that really the same thing as liberation?
According to Greg Muttitt, co-author and lead researcher of the “Crude Designs” report, “for all the US administration's talk of creating a democracy in Iraq, in fact, their heavy pushing of PSAs stands to deprive Iraq of democratic control of its most important natural resource. I would even go further: the USA, Britain and the oil companies seem to be taking advantage of the weakness of Iraq's new institutions of government, and of the terrible violence in the country, by pushing Iraq to sign deals in this weak state, whose terms would last for decades. The chances of Iraq getting a good deal for its people in these circumstances are minimal; the prospect of mega-profitable deals for multinational oil companies is fairly assured.”
Of course, ongoing oil exploration in Iraq by administration-friendly companies would require permanent US bases, a massive ongoing troop presence and billions more in taxpayer-dollar subsidies to sleazy outfits like Halliburton.
The implications of all of this for domestic oil prices is unclear. While neo-conservatives initially pushed for privatizing Iraq’s oil reserves as a way of destroying OPEC (they wanted to boost production and flood world markets with cheap oil) the administration seems to have taken a more corporate-friendly stance. After all, the last thing oil executives want is to break OPEC’s stranglehold on pricing, because keeping supply low has delivered record profits.
But the “National Strategy for Victory in Iraq” which Bush released this week as part of his pro-occupation PR blitz lists a surprising goal: “facilitating investment in Iraq’s oil sector to increase production from the current 2.1 million barrels per day to more than 5 million per day.” OPEC’s quota for Iraq currently sits at around 4 million barrels per day, so the administration’s goal is not only significantly higher, but (at “more than 5 million”) a little too open-ended for the cartel’s comfort. Could be that Bush & Co. want to have their cake and eat it too: tighten the screws on OPEC, yet continue to rip off consumers through elevated prices.
The whole PSA affair may also stoke the fires for a US invasion of Iran, which sits on oil reserves even greater than those of Iraq.
Tehran already is on the administration’s hit list, less for its nuclear aspirations than for its plans to open a euro-based international oil-trading market in early 2006. Iran’s oil “bourse” would compete with the likes of New York’s NYMEX and provide OPEC the opportunity to snub the greenback in favor of “petroeuros,” a development the administration will avoid at all costs. So if the PSA model is adopted in Iraq, it would provide a clear precedent for implementing it in Iran too, and hand the administration another reason to start the next invasion.
Heather Wokusch can be reached via her website: www.heatherwokusch.com. She’s been on an extended book-writing sabbatical, but will be up and ranting on a regular basis in early 2006.
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