7 January 2006

Crude oil

By Jacqui McCarney

In a couple of weeks we will know the results of the latest elections in Iraq. Hope for the fragile democracy born of chaos, violence and unthinkable suffering may offer a little light to Iraqis wishing at last to have some say in the future of their country. But despite George Bush crowing that the elections are "one of the most amazing achievements in the history of liberty", we all know that democracy in Iraq is up against formidable obstacles - not least those obstacles created by the "liberating" forces themselves.

For behind closed doors and against the democratic wishes of the people, the country's major asset, oil, is in the process of being handed over to multinational oil companies. An extensive and detailed research report called Crude Designs published at the end of last year by PLATFORM and a group of NGOs including War on Want and New Economics Foundation (NEF) uncovers the truth about the future of Iraqi oil and the consequences of these decisions on the fledgling democracy.

The West's covetous attitude to Iraqi oil goes back a long way - in this time of increasing energy shortage, the war on Iraq begins to make complete sense even to the least cynical of us. As Andrew Simms, Policy Director of nef says "Instead of a new beginning Iraq is caught in a very old colonial trap."

In 1918 the first Secretary of the War Cabinet, Sir Maurice Hankey, wrote: "Control of these (Iraq / Iran) oil supplies becomes a first class British aim". In 1925 Britain installed monarch King Faisal and signed a "concession" contract with a consortium of British, French and later American oil companies, known misleadingly as Iraq Petroleum. The contract was modelled on one used widely in the British colonies and for a period of 75 years the terms were frozen. In the 1930 this consortium obtained the rights to all the oil in the country and Iraqi calls for even a modest 20% stake were denied.

Frustration grew at the unjust terms of these deals and the ultimate conclusion was the nationalisation of many of the oil industries in the Middle East. In Iraq this happened in two stages in 1961 and 1972. Nationalisation meant that the state and not foreign companies had control of the industry. This did not fulfil Western interests.

No surprise, then, that in 2003 Jack Straw Foreign Secretary announced that one of the Foreign Office priorities was "to bolster the security of British and global energy supplies".

Observers waited for the triumphal privatization of Iraq oil, but while Paul Bremer introduced widespread privatisation of the Iraq economy in 2003 and 2004, he did not include the oil industry. Why?

The oil companies had come up with an ingenious form of contract known as production sharing agreements (PSA). PSAs keep ownership with the state but by setting the terms the right way could deliver the same outcome as the older form of "concessions". The trick of making it look like ownership was in public hands is intended to calm nationalist pressures within the country.

PSAs are extremely complex, often running into hundreds of pages of legal, technical, economic language. The oil industry employs the most experienced accountancy firms and lawyers to ensure it all works in its favour. These contracts are for fixed terms of between 25 and 40 years and once signed the Iraqi people will have to accept the consequences for decades.

Economic projections published in "Crude Designs" show that the oil development being proposed will cost the Iraqi people billions of dollars in lost revenue, while providing foreign companies with enormous profits - rates of return of 42% to 162%. The report's authors suggest several workable alternatives which would provide adequate capital for the Iraqi people to develop the industry themselves.

Instead, PSAs represent a fundamental redesign of Iraq's oil industry, shifting it from public into private hands. This is happening without public consultation or scrutiny and with the loss of democratic control of the oil industry to international companies.

The Financial Times responded to the news of the use of PSAs in the oil industry in Iraq by saying: "The move could spell a windfall for big oil companies such as Exxon Mobil, Royal Dutch, Shell, BP, and Total Fina Elf".

As lead researcher of the report, Greg Muttitt of PLATFORM says: "The form of contracts being promoted is the most expensive and undemocratic option available. Iraq's oil should be for the benefit of the Iraqi people, not foreign oil companies."