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Who will control Iraq’s oil? Draft law would open door for multinationals to move in
Under heavy pressure from the U.S., Iraq’s cabinet approved a draft oil law, Feb. 26, that would effectively shift control of the country’s huge oil resources to multinational corporations, experts charge. Iraq’s Parliament has yet to see the details, but U.S. and British oil corporations and the International Monetary Fund have been involved in the drafting process since early 2006.
Iraq has the world’s second or third largest proven oil reserves. Oil is seen as key to rebuilding the country and enabling it to achieve economic and political sovereignty. Iraq’s oil also puts it in the cross-hairs of transnational oil corporations and international power politics.
The draft law provides for “exploration risk contracts” allowing foreign companies control of oil exploration, development and production for up to 30 years. Earlier drafts used the more commonly known term “production-sharing agreements” (PSAs), but these sparked enormous opposition in Iraq, particularly from its unions.
The new draft “sets up the same thing with a different name,” said Greg Muttitt, co-director of Platform, a British group that watchdogs the multinational oil corporations. In addition, the draft allows the government to sign contracts without Parliament’s approval, he said.
If the law is adopted as is, “basically, control of the Iraqi oil industry will shift from the public sector, where it’s been since the 1970s, into the hands of the multinational oil companies, especially British and American, which is a very radical change,” he said. But Iraqis are “passionate” about keeping the oil in Iraq’s hands, Muttit noted. “It will be very difficult to overcome public sentiment.”
“We are against PSAs” regardless of what they are called, said Salam Ali, of the Iraqi Communist Party’s international relations committee. National ownership of oil is a “very sensitive” issue for Iraqis. “Whoever drafted this version has made sure it will not seem as controversial as had been expected,” Ali said. “There was some massaging.” But privatization is a “subtext” of the draft, he said.
With this agreement, Muttit said, Iraq would be “completely breaking away from normal procedure” used by all major oil-producing countries, none of whom allow such foreign control. In Saudi Arabia, with the world’s biggest oil reserves, oil is fully owned and controlled by the national oil company. The same is true for Kuwait. The United Arab Emirates and Iran allow some foreign investment but maintain national control.
Russia offers a striking lesson, he said. With the world’s seventh biggest reserves, Russia is the largest country to have signed PSAs. It signed three such agreements in the mid-1990s, but they became so controversial that none have been signed since and “there is no chance of more,” Muttitt said. Like Iraq today, Russia in the 1990s was in a period of political and economic chaos. “A few years later, the Russians woke up” and saw that these deals were a big mistake, “but it was too late.” Now, he said, the same thing could happen to Iraq.
Experts note that Iraq has fallen behind on technical expertise after a dozen years of U.S.-imposed economic sanctions, followed by the war. What would help Iraq, they say, is “technical service contracts” like those used by Iraq’s neighbors. These are standard business contracts that countries’ national oil companies sign with foreign companies to bring in expertise. They are for limited time periods, for specific services and fees, not contracts that hand foreign transnationals exclusive rights to develop the oil for their own interests and take a large share of the revenue.
An English version of a new Iraqi oil law leaked in mid 2006. This leaked English version shocked a number of specialists, like Erik Leaver from the institute for Policy Studies, because it had some exact text from a previously leaked seminar papers produced by a private contracting company called “Bearing Point”. Taking in consideration that the law privatises Iraq’s oil and opens the doors for U.S. companies to sign long term contracts controlling Iraq’s oil resources and infrastructure, this law is in violation of existing U.S. Public Law No: 109-234 that says: “To provide that no funds made available by title I of this Act may be made available to establish permanent United States military bases in Iraq or to exercise control by the United States over the oil infrastructure or oil resources of Iraq.” U.S. contractors, such as Bearing Point, have been working with the U.S. State Department to draft the Iraqi Oil law and the State Department has been pushing for the privatization of Iraq’s oil in plans dating as far back as 2002.
In February 2007, a leaked Arabic copy of the Iraqi oil law was published on Al-ghad.org, an Iraqi website. I translated this leaked copy to English. My translation was based on the previously leaked English version of the law. From what I can tell, the Arabic language was not native, it looked weak and translated. I have no doubt that the English version of the law is the original one, and that the Arabic one is nothing more than an edited translation of the English origin. The few changes in the content, between the Arabic and English versions show clearly that the Iraqi lawmakers who worked on the law did not change any of the parts that relates to foreign investments. The majority of the changes from the original English version were linked to decentralizing authorities and reducing central powers.
The oil law, as it looked like in February of this year, was a marriage of convenience between the Bush administration, the IMF, and the U.S. oil companies on the one hand and the Iraqi separatist leaders on the other hand. Iraqi Separatist leaders, Sunnis and Shia and Kurds, don’t seem to mind the billions of dollars that Iraq would lose to foreign oil companies. The only parts of interest for Iraqi separatists seem to be how to decentralize authorities and oil revenues distribution to facilitate future splits from the central government.
On the first of March 2007, I managed to leak the final and official copy of the Iraqi oil law through a contact in the so called “green-zone”. The copy I leaked included the final oil law to be submitted to the Iraqi parliament and the cabinet of ministers’ resolution for submitting the law to the parliament. In addition, this copy included all the 4 appendixes with information about the targeted oil fields. This version was a step forward for separatists in reducing the central powers and giving ultimate powers to regions and provinces.
Passing a new Iraqi oil law is not an urgent item on Iraq’s agenda. This is what Iraqi experts have been saying for the last year, and this is what a big number of Iraqi members of parliament, like the nationalists who met in Jordan in March 2007. More than 60 Iraqi experts and officials signed a petition against the new oil law. One of the MPs participating in the Amman-Jordan conference said that “this law must be rejected as whole, there is no way it can be enhanced or fixed”. Many Iraqi and Iraqi MPs think this is true. Another conference held in Dubai-UAE during this month, April 2007, by the Iraqi parliament included many Iraqi experts (including the three Iraqis who helped write the original version of the law) and Iraqi MPs. The majority of the participants thought the law should not be passed for three major reasons:
1- Iraq’s unity: The law threatens Iraq unity through decentralizing the major authorities related to petroleum operations. Many Iraqis view the law as an “Iraq separation fund”. Many observers this that a number of Iraqi separatist leaders, Sunnis and Shias and Kurds, are using this law to implement their separatist agenda. They want to split Iraq into three or more sectarian/ethnic regions. Iraqi nationalist leaders are fighting against the law because they think this is the most dangerous thing that could happen. Iraqi nationalist, Sunnis and Shias and Kurds, believe in a unified Iraq with a central government that controls natural resources.
2- Iraq’s sovereign: The law undermines Iraq’s sovereignty in three ways. First: the Iraqi government cannot controlling the oil production limits, the thing that will stop Iraq’s relationship with OPEC. Second: The law does not recognize the Iraqi judicial system as an authority for resolving desputes. Third: Foreign oil companies are represented on the board of the Iraqi Federal Oil and Gas Council. It is unprecedented that a sovereign state allows representatives of foreign oil companies to sit on its federal oil and gas council approving their own contracts and decide where oil revenue should be distributed. 2/3 of the attending members of the Federal oil and Gas Council can approve any contract even if the terms of that contract contradict existing laws.
3- Financial losses: In addition to the main points mentioned above, Iraq will lose hundreds of billions of dollars to foreign oil companies during the next 35 years ecause the law doesn't give any preferences to local companies and due to the unconventional type of contracting this law legalizes called the Production sharing agreements (PSA) or the exploration and production agreements. Iraqi leaders in general, separatists or nationalists, don’t mind dealing with foreign companies, but many Iraqis are against singing unfair long-term contracts with foreign or local companies. According to the new oil law, the foreign oil companies will have exclusive rights to produce oil from certain fields. They do not have to do any work during the first 10 years, which is called the “exploration period” in the law. This 10 year period is very convenient for foreign oil companies so that they won’t do any work while Iraq is violent and unstable, but they’ll make sure that no one else will produce the Iraqi oil for the next 10 years. When foreign oil companies think the time is appropriate to start working, they can produce oil for up to 25 years with huge profits because they own a certain percent of the oil. Other oil-rich Middle Eastern countries never use these types of contracting. Instead, they just hire foreign companies under technical services agreements (TSA) that doesn’t privatize the oil and gives a flat reasonable rate to foreign companies.
The new oil law is a direct intervention in Iraq’s domestic policies. It will result in nothing more than increasing the Iraqi-Iraqi imposed violence, and the Iraqi-occupation fight. The best oil law is the law that the Iraqis will choose after the last US soldier leaves, and the best and only policy that will end the violence in Iraq is setting a timetable that will end all the U.S. presence in Iraq completely, without permanent bases, and gives Iraqis the time and space to heal their wounds and rule their country.