Tuesday, November 29, 2005

Report on Iraqi Oil: The Rip-Off of Iraq’s Oil Wealth: "The UK and US have long had their eyes on the massive energy resources of Iraq and the Gulf. In 1918 Sir Maurice Hankey, Britain’s First Secretary of the War Cabinet wrote:

“Oil in the next war will occupy the place of coal in the present war, or at least a parallel place to coal. The only big potential supply that we can get under British control is the Persian [now Iran] and Mesopotamian [now Iraq] supply… Control over these oil supplies becomes a first class British war aim.”(1)

"After World War II both the US and UK identified the importance of Middle Eastern oil. British officials believed that the area was “a vital prize for any power interested in world influence or domination”(2), while their US counterparts saw the oil resources of Saudi Arabia as a “stupendous source of strategic power and one of the greatest material prizes in world history”(3).

"With over 60% of the world’s oil reserves,(4) their interest in the Gulf region is unsurprising. Iraq alone has the third largest oil reserves on the planet – accounting for 10% of the world total. Iraq is also reckoned to have the world’s largest unexplored potential, primarily in the Western Desert. On top of its 115 billion barrels of proven reserves, Iraq is estimated to have between 100 and 200 billion barrels of further possible (as yet undiscovered) reserves. Furthermore, not only are Iraqi and Gulf reserves huge, they are mostly onshore, in favourable reservoir structures, and extractable at extremely low cost.

"Since the nationalisation of the major oil industries of the Middle East in the 1970s, Gulf reserves have been out of the direct control of the West and off the balance sheets of its companies."

"In February 2005, Interim Oil Minister Thamer al-Ghadban stated that "As for the extraction sector, that is, dealing with the oil and gas reserves, which are 'assets', privatisation is completely out of the question at the moment."(20) But if the non-privatisation of oil was a surprise, this was largely based on a misconception of what “privatisation” means in the Iraqi context. In the minds of some neo-conservatives, writing on Iraqi oil before the war, privatisation meant the transfer of legal ownership of Iraq's oil reserves into private hands. However, in all countries of the world except the USA (a), reserves (prior to their extraction) are legally the property of the state. This is the case in Iraq, and remains so under the new Constitution. There has never been a realistic prospect of US-style privatisation of Iraq’s oil reserves. But this does not mean that private companies would not develop Iraq’s oil.

"In some ways, the debate on “privatisation” has obscured the important practical issues of who gets the revenue from the oil, and who controls the way in which oil is developed."

"While these disputes were raging in the Middle East, a different model was emerging in Indonesia. There, a new form of contract was introduced in the late 1960s: the production sharing agreement (PSA).

"An ingenious arrangement, PSAs shift the ownership of oil from companies to state, and invert the flow of payments between state and company. Whereas in a concession system, foreign companies have rights to the oil in the ground, and compensate host states for taking their resources (via royalties and taxes), a PSA leaves the oil legally in the hands of the state, while the foreign companies are compensated for their investment in oil production infrastructure and for the risks they have taken in doing so.

"Although many in the oil industry were initially suspicious of Indonesia’s move, they soon realised that by setting the terms the right way, a PSA could deliver the same practical outcomes as a concession, with the advantage of relieving nationalist pressures within the country. In one of the standard textbooks on petroleum fiscal systems, industry consultant Daniel Johnston comments:

“At first [PSAs] and concessionary systems appear to be quite different. They have major symbolic and philosophical differences, but these serve more of a political function than anything else. The terminology is certainly distinct, but these systems are really not that different from a financial point of view.”(22) "

" Our analysis shows that production sharing agreements have two major disadvantages for the Iraqi people:

1. The loss of hundreds of billions of dollars in potential revenue;

2. The loss of democratic control of Iraq's oil industry to international companies"

"We have seen in the preceding chapters that, 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."

Naturally it remains to be seen whether the course of the insurgency and withdrawal of US forces will interfere with the implementation of this Imperialist plot.

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