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January 20, 2007

The Independent: How the West will make a killing on Iraqi oil riches

Writing in the Independent, Andrew Murray-Watson and Tim Webb report that:

Iraq's massive oil reserves, the third-largest in the world, are about to be thrown open for large-scale exploitation by Western oil companies under a controversial law which is expected to come before the Iraqi parliament within days.

The US government has been involved in drawing up the law, a draft of which has been seen by The Independent on Sunday. It would give big oil companies such as BP, Shell and Exxon 30-year contracts to extract Iraqi crude and allow the first large-scale operation of foreign oil interests in the country since the industry was nationalised in 1972.

The huge potential prizes for Western firms will give ammunition to critics who say the Iraq war was fought for oil.

This plan will allow oil companies that invest in Iraqi oil infrastructure to "take up to 75 per cent of the profits will last until they have recouped initial drilling costs. After that, they would collect about 20 per cent of all profits, according to industry sources in Iraq. But that is twice the industry average for such deals."

In a hole, the Bush administration still appears to be digging. The idea that this was 'war for oil' has helped make the US-lead invasion unpopular in Iraq; passing laws which appear to verify this, and are drafted by the US, will only stir up additional anger. There are, also, a number of simple, relatively cheap measures that could quickly be taken to improve the functioning of Iraq's oil industry: for example, one point emphasised by shocked interviewees on the BBC's recent Baghdad Billions documentary is that Iraqi oil is still not metered properly. Such basic measures should be taken before there's even a need to think of more complex moves such as long-term oil extraction deals.

There is also the issue of Iraqi 'sovereignty'. The state's currently nothing like a sovereign country in any conventional sense - for example, it lacks the Weberian monopoly of legitimate force. Elections held in Iraq have, to put it mildly, been problematic, and the government is currently facing a number of violent challenges. If long-term deals are made under this Iraqi government, this could seriously limit the capacity of future governments to decide what to do with the state's resources - and thus further limit the capabilities of the Iraqi state.

One more positive solution which has been suggested is to use the revenue from Iraqi oil to pay a 'resource dividend' to the Iraqi people - similar to the situation in Alaska, with each Iraqi citizen being given a regular payment drawn from Iraqi oil sales. This would have several benefits:
- it would provide additional income to Iraqi citizens, and thus boost the economy and help to ameliorate poverty.
- if Iraqis knew that they would benefit from oil revenues in a transparent way, attacks on oil infrastructure would become less popular and calls for transparency and anti-corruption measures are likely to become more insistant.
- this would leave the control of and income from Iraqi oil in the hands of Iraqi citizens. They would benefit from this in the short term and, if Iraq became more stable and decided to change the way oil is handled in the longer term, the Iraqis would be in a much better position to negotiate their terms with the oil companies.

Posted by jon_mendel at January 20, 2007 09:43 PM

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