Signing away Iraq’s democracy

Article 13 Jan 2006 admin

This report was first published in Platform’s carbon web newsletter, issue 3.

As Carbon Web goes to press, Iraqi politicians are still haggling over the key roles in forming a new government. The outcome will be closely watched not only by Iraqis, but as a recent PLATFORM report reveals, by multinational oil companies, hoping to acquire a stake in Iraq’s oil production. The reasons for their interest are clear: Iraq holds 10% of the world’s oil reserves, which are also among the most profitable to extract. Shortly before the 2003 invasion, the US oil major ConocoPhillips said “We know where the best [Iraqi] reserves are – we covet the opportunity to get those someday.” Shell meanwhile aims to “establish a material and enduring presence in the country.”

Oil companies have lobbied hard for access to Iraq’s oil, and also for control over it, through contracts known as ‘production sharing agreements’ (PSAs). The report entitled Crude Designs, is the first to highlight the devastating cost of this approach. The report estimates the lost revenue over the life of the new oil contracts to be between $74 billion and $194 billion, compared with oil development staying in public hands. This represents between two and seven times the current Iraqi state budget. Meanwhile, the contracts would ensure massive profits for the companies involved, with rates of return of up to 162%. The oil industry’s profitability threshold is 12%, and only rarely do projects generate much more than 20%. Moreover such agreements would break with standard practices, used across the Middle East. A key player in lobbying for PSAs was the International Tax and Investment Center (ITIC), a little-known lobby group, set up in the early 1990s to lobby for business-friendly economic restructuring in the former Soviet Union. Oil is especially prominent among its interests: its Board of Directors includes representatives of Shell, BP, ConocoPhillips, ExxonMobil and chevron Texaco. In 2004, ITIC began working on Iraq.

With unfortunate choice of language, ITIC described the country as a “beachhead” for broader expansion of neoliberal policies across the Middle East. Its influence should not be underestimated. The World Bank and IMF organised the meeting at which ITIC presented its arguments for PSAs to Iraq’s Ministries of Oil, Finance and Planning. ITIC’s views have also been copied directly into British Government “advice” to the Iraqi Oil Ministry. Despite this, ITIC does not like the light of public debate – presumably preferring to deal with chief executives and government ministers. In November the president of ITIC walked out of a live radio debate with PLATFORM, when challenged on the quality of ITIC’s economic arguments for PSAs in Iraq.

International interest in Crude Designs has been enormous, with extensive media coverage. The report has been downloaded from the web more than 60,000 times. This response reflects the lamentable volume of public discussion on foreign interests in Iraqi oil – despite the widely held view that oil was a central reason behind the invasion. It also illustrates why the oil companies are so reluctant to show their faces in this debate. PSAs themselves enshrine secrecy. Running to hundreds of pages in complex legal and financial language, and generally subject to commercial confidentiality, PSAs are effectively immune from public scrutiny.

Furthermore, PSAs lock governments into economic terms that cannot be altered for decades – even if signed by a weak government under political pressure (and military occupation). Companies take control of production and depletion rates – one of the most important decisions in managing the economy, as oil accounts for 95% of Iraqi government revenue. Furthermore, PSAs generally exempt foreign oil companies from any new laws that might affect their profits.  For all the US Administration’s talk of building democracy in Iraq, they are lobbying for a contractual system that would deprive Iraq of democratic control over its most important natural resource.

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