Iraq Faces To Lose Billions In U.S.-Brokered Oil Deal

by Emad Mekay

(IPS) WASHINGTON -- Oil exploration deals currently being negotiated between the Washington-backed Iraqi government and multinational oil companies could cost Iraqis up to $194 billion in lost revenues and transfer more than two-thirds of the country's oil reserves to the control of foreign firms, a new report warns.

"In short, the winners for control of Iraq's oil are the U.S, the UK, and their oil companies," said Steve Kretzmann of Oil Change International and co-publisher of the report, "Crude Designs: The Rip-Off of Iraq's Oil Wealth."

"The losers are the Iraqi people," he added.

The report says that by binding the interim Iraqi government to a type of contract that gives the upper hand to their executives, multinational oil companies will guarantee themselves fat profit margins of 42 to 162 percent, far more the usual industry target of around 12 percent.

U.S. and British oil companies have been pressing for high returns on investments in Iraq, citing the country's volatile security and political situation.

"The form of contracts being promoted is the most expensive and undemocratic option available," said Greg Muttitt of PLATFORM, a London-based oil industry watchdog group. "Iraq's oil should be for the benefit of the Iraqi people, not foreign oil companies."

The contracts are called "production sharing agreements" (PSAs), which typically run between 25 and 40 years and are off-limits to public scrutiny.

They have been defended by some Iraqi officials, who say they would fast-track the nation's oilfield development.

"In order to make major quantum increases in oil, we need to have production-sharing agreements," Iraqi Deputy Prime Minister Ahmad Chalabi said recently.

But critics note that the terms of such contracts, now keenly promoted by the U.S. and Britain, bar local authorities from amending them in the future and are subject to confidentiality provisions.

Developed in the 1960s, the contracts keep legal ownership of oil reserves in state hands, thus avoiding allegations that national wealth has been transferred to foreign hands. But in practice, they give oil companies the same results as the concession agreements they replaced. PSAs guarantee investors stable taxes for the life of the project.

Iraqis will not be able to contest the contracts in their own courts, because they require that all disputes be heard by international investment tribunals. Such tribunals have traditionally ruled based on commercial interests rather than on national interests, international law or human rights.

"This report calls for full and open debate in Iraq about the way oil resources are to be developed, not 30-year deals negotiated behind closed doors," the authors said in a statement, warning that oil companies, backed by the might of the United States and Britain, may take further advantage of the fragile state of the government in Iraq.

"Iraq's institutions are new and weak," said Muttitt. "Experience in other countries shows that oil companies generally get the upper hand in PSA negotiations with governments. The companies will inevitably use Iraq's current instability to push for highly advantageous terms and lock Iraq to those terms for decades."

The new Iraqi constitution, passed in October, opened the way for much greater foreign involvement in Iraq's oilfields. Negotiations with oil companies by the Iraqi government are already underway, ahead of elections in December and prior to the passing of a new Petroleum Law.

The study points a finger at a group of powerful Iraqi politicians and technocrats who are pushing for this system of long-term contracts with foreign oil companies. This, the report finds, "will be beyond the reach of Iraqi courts, public scrutiny or democratic control."

Authors of the report say their findings confirm, as many Iraqis have long believed, that one of the reasons for the U.S-led invasion of Iraq was to share the spoils of war with oil companies in Iraq, a country that has the world's third largest oil reserves.

"Many Iraqis believe that the war was waged for oil and Iraqi public opinion is overwhelmingly against the U.S.-led occupation, so entering into secret arrangements with foreign oil companies will only increase the chances of political instability," said Erik Leaver, a research at the Washington-based Institute for Policy Studies, also a co-author of the report.

PSAs are not the only option available, says the report, quoting International Atomic Energy Agency figures that show that this type of contract is only used for about 12 percent of the world's oil reserves, mostly in countries with high production costs and uncertain exploration results.

The report suggests that as an alternative to the PSAs, Iraq can finance its oil production by getting international oil companies to sign shorter-term and less restrictive contracts. They can also fund exploration with their own money, or even use future oil flows as collateral to borrow funds, regionally or internationally.

If the Arab country, whose occupiers say they are there to promote freedom and democracy, follows along with the proposed PSAs, the report cautions, "Iraq could be surrendering its democracy as soon as it achieves it."