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Saturday
Jan282006

The Rip-Off of Iraq's Oil Wealth

231239-258298-thumbnail.jpg"While the Iraqi people struggle to define their future amid political chaos and violence, the fate of their most valuable economic asset, oil, is being decided behind closed doors."

This report from Global Policy Forum* reveals how an oil policy with origins in the US State Department is on course to be adopted in Iraq, soon after the December elections, with no public debate and at enormous potential cost. The policy allocates the majority of Iraq’s oilfields – accounting for at least 64% of the country’s oil reserves – for development by multinational oil companies.

Iraqi public opinion is strongly opposed to handing control over oil development to foreign companies. But with the active involvement of the US and British governments a group of powerful Iraqi politicians and technocrats is pushing for a system of long term contracts with foreign oil companies which will be beyond the reach of Iraqi courts, public scrutiny or democratic control.

COSTING IRAQ BILLIONS

Economic projections published here for the first time show that the model of oil development that is being proposed will cost Iraq hundreds of billions of dollars in lost revenue, while providing foreign companies with enormous profits.

Key findings are:

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........................

"....under the influence of the US and the UK, powerful politicians and technocrats in the Iraqi Oil Ministry are pushing to hand all of Iraq’s undeveloped fields to multinational oil companies, to be developed under production sharing agreements. They aim to do this in the early part of 2006.

The results for Iraq would be devastating:

Iraq would lose an enormous amount of revenue (making it conversely highly profitable for the foreign companies);

The terms of the contracts would be agreed while the Iraqi state is very weak and still under occupation, but be fixed for 25-40 years;

PSAs would deny Iraq the ability to regulate or plan its oil industry, leaving foreign companies’ operations immune from future legislation;

PSAs would shift decisions on any disputes out of Iraq into international arbitration courts, where the Iraqi constitution, body of law and national interest are simply not relevant.
Yet, Iraq has other options for obtaining investment in its oil sector, including:

Direct financing from government budgets;

Government/state oil company borrowing; or

Less damaging contracts with multinational oil companies, such as buybacks or risk service agreements.
These decisions should be made with the full participation of the Iraqi people, not in secret by unaccountable elites. Care should be taken not to take major irreversible steps that would later be regretted.

Getting these decisions right is vital for the future of Iraq."

More here from global policy forum

* Global Policy Forum's mission is to monitor policy making at the United Nations, promote accountability of global decisions, educate and mobilize for global citizen participation, and advocate on vital issues of international peace and justice.

GPF is a non-profit, tax-exempt organization, with consultative status at the UN. Founded in 1993 by an international group of concerned citizens, GPF works with partners around the world to strengthen international law and create a more equitable and sustainable global society.

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