Cheney, Rumsfeld and others who seem to view world politics as a ruthless
game of Risk must be anticipating that the “privatization” of Iraq's
key prize will be their ultimate vindication here at home. "The problem
is that the good Lord didn't see fit to put oil and gas reserves where there
are democratically elected regimes friendly to the interests of the United States,"
the former Halliburton CEO proclaimed to a Nightline audience in April of 2002.
So they must be expecting that the many shortsighted naysayers who are starting
to get cold feet and call for withdrawal will some day look back and thank them
for staying the course and securing the vast pool of untapped crude that lies
beneath the sand near today's battlefields.
Many, that is, whose children haven't by then had their heads blown off.
Although there hasn't been much coverage in the U.S., last week the UK-based
PLATFORM revealed the strategy to take over Iraq's oil in a new report, "Crude
According to the authors, it's not quite the ownership of oil reserves
that western interests are after, but an arrangement that will allow governments
and companies to deny that “privatization” is taking place at all.
The plan, which was developed by the State Department's Future of Iraq
Project, and supported by key figures in the Oil Ministry, is to use highly
complex contracts known as production sharing agreements (PSAs), which have
existed in the oil industry since the late 1960s.
PSAs are an ingenious arrangement that leaves intact state ownership of the
untapped oil, while inverting the flow of payments between the state and companies.
Whereas in a concession system, foreign companies have rights to the oil in
the ground, and compensate host states for extracting their resources (e.g.
via royalties or taxes), under a PSA foreign companies are compensated for their
investment in oil production infrastructure and the risks they take in extracting
the oil. Under PSAs, the private companies will continue to operate as "contractors"
-- a label that is misleading because it gives companies control over oil development
and access to extensive profits.
"PSAs are effectively immune from public scrutiny and lock governments
into economic terms that cannot be altered for decades," the authors contend.
As Helmut Merklein, a former senior official of the Department of energy once
explained, PSA's inevitably tend to give foreign oil companies excessive profits
at the country's expense (the authors estimate those profits will be between
42% and 162%).
PSAs are also designed to deprive governments of control over the development
of their oil industry. PSAs would, for example, exempt foreign oil companies
from any new laws that might affect their profits, a principle that goes far
beyond certain CPA orders which
already grant U.S. companies immunity from civil lawsuits in Iraq. Under terms
that are reminiscent of certain trade agreement provisions, for example, any
disputes would be heard not in the country’s own courts but in international
investment tribunals, which would rule on commercial grounds without considering
the national interest or other national laws.
For that and other reasons, oil experts agree that the purpose of using PSAs
is largely political. In Iraq’s case, the PSA contracts could be inked
while the country still under military occupation. The use of PSAs has been
endorsed by the current Transitional Government, while the new Iraqi Constitution
includes vague provisions that would allow foreign companies in.
Yet the use of PSAs in Iraq would represent a major departure from the normal
practice among large oil producers in the region. Saudi Arabia and Kuwait (not
to mention Iran) also do not use any form of foreign company equity involvement
in oilfileds. (Currently just 12% of world oil reserves are currently subject
Although no one can predict what will happen, the pressure put on Iraq to adopt
PSAs is substantial and has a lot to do with the coded language that talks about
"spreading democracy" throughout the oil-rich region. The current
government is fast-tracking the process and is already negotiating contracts
with oil companies in parallel with the constitutional process, elections and
passage of a Petroleum Law.
To keep up with this issue, check out Oil
Change International, IPS and the Global