The Future of Iraqi oil as proposed by the Iraqi Study Group

Jan 10, 2006

By Munir Chalabi
munir@chalabi.screaming.net

The US Democrats and the Republicans may disagree on many tactics and probably on part of the strategy for how to sustain the military occupation of Iraq, but when it comes to the strategy for the future of Iraqi oil they seem to be in agreement on every detail.

The Iraq Study Group (ISG) report represents a joint approach by both parties and its recommendations look to be very similar to the right-wing Republican's policies set by the State Department's "future for Iraq project" prior to the 2003 invasion.

Short-term strategy

The short-term objectives are as outlined in recommendation 62 which stated "to prepare a draft oil law that ... creates a fiscal and legal framework for investment" (meaning investments by international oil companies).

It goes further by calling on the US government to interfere in the writing of the draft of the Petroleum law to ensure that the new law should specially cover the huge oil reserves of the southern oil fields.

The ISG emphasizes the important of introducing a Petroleum law, as a milestone to be approved by the Iraqi Parliament no later than early 2007.

Furthermore the ISG admits that the occupying forces in Iraq are going to stay for a long time to come, to ensure the protection of the oil flow, when they recommended that "the US military should work with the Iraqi military and with private security forces [meaning the foreign mercenaries] to protect oil infrastructure and contractors."

Long-term strategy

The long-term objectives are outlined in recommendation 63. It highlights long-term US interests and shows that the reason for the war on Iraq was to sustain full control of the huge reserve of Iraqi oil. The proven reserve is over 115 billion barrels of oil and potentially another 215 billion barrels within the 400 unexplored structural anomalies.

The ISG emphasizes that US interests lie with the international oil companies and specifically the US companies, to ensure that they have complete control of Iraqi oil reserves (the second largest in the world). This policy has been highlighted in the report stating that "the United States should encourage investment in the Iraqi oil sector by the international community and by international energy companies."

So what model of oil contracts is the report calling for?

The report proposes that the US should provide Iraqi officials with contracting templates without naming the model of oil contracts.

But at the same time recommendation 63 states, "the United States should assist Iraqi leaders to reorganize the national oil industry as a commercial enterprise...."

Looking at both proposals, together with all the other suggestions in the "Assessment of the Current Situation" part of the report provides an overwhelming indication that the report is calling for some kind of re-privatization of the Iraqi oil industries but from "the back-door" and is very likely directed towards the type of contracts known as "Production Sharing Agreements or PSA."

The information available on the best-kept secret -- the draft of the oil (hydrocarbon) law -- confirms that the new oil law will recommend that Iraq should implement PSAs and other types of contracts such as buyback and service contracts.

The PSA was introduced by the oil companies in the early 1960s to replace the out-of-date "concessionary" contracts (the early twentieth century model) to ensure that it reflects the interests of the oil companies, and maintains their profits at the same level as the concessionary model.

The PSA technically keeps the legal ownership of the oil reserves in the hands of the Iraqi state whilst actually giving full control to the oil companies.

In short, the PSA model will cost the Iraqi people hundreds of billions of dollars in lost revenue whilst providing the oil companies with enormous profits.

For a comprehensive analyses of the PSA contracts see Platform study "Crude Designs: The rip-off Iraqi's oil wealth."

Conclusions:

1. The ISG recommendations are clearly calling for a back-door form of re-privatization of Iraqi oil wealth, which represents the interests of the US government and the international oil companies and not the Iraqi people.

2. The recommendations also call for long-term US military bases on Iraqi soil to protect US oil interests in Iraq.

3. The World Bank, the US administration and the IMF are also putting all manner of pressure on the Iraqi government to get a new hydrocarbon law through the Iraqi parliament in line with the ISG recommendations as soon as possible.

4. All indications are pointing to the fact that the draft of the new oil law is complying with many requirements of the ISG recommendations.

5. The major obstacle that seems to be delaying the presentation of the oil draft to the parliament is the disagreement between the Iraqi central government/ISG recommendations on one hand and the Kurdish regional government on the other hand with regard to the interpretation of article 111 of the Iraqi constitution.

6. Both the Iraqi Government and the ISG are calling for changes to article 111 to give more power to the federal government when it comes to taking strategic decisions on the future of the nation's oil wealth.

It is obvious in the mind of many analysts that the reasons behind the ISG's support for more power to the Iraqi central government on strategic decisions, is to give more legitimacy to any new contracts which could be signed between the federal government and the international oil companies, in case these are challenged in the future by a new Iraqi government in international court.

7. All indications are that the draft of the new oil law will recommend the re-instatement of the "Iraqi National Oil Company -- INOC" (which was dissolved by the Baathist government back in 1987), but with fewer powers than the old INOC.

8. It is in the interests of the Iraqi people not to rush into any new strategic oil law that will decide the future of the country's wealth within the lifetime of this parliament whilst Iraq is still under occupation and the Iraqi state is on its knees.

9. It will be in the Iraqi peoples' interest to have a temporary oil law which re-establishes INOC and gives it full decision-making powers.

Furthermore, it should permit only a short-tem contract between INOC and the international oil companies so as to provide technical help to develop the existing oil fields, which can produce up to 3.5 million barrels/day -- the same level of oil production as in 1979.