Oil legislation raises suspicions of past

Oil industry privatization in Iraq will reap vast profits for multinational corporations.

Ministers in the Iraqi government are quietly drafting a law which will open up the country’s vast oil reserves to Western companies. This law, which has gone mostly unnoticed amid the violence and chaos in Iraq, would have far-reaching consequences in a country where oil makes up 70 percent of the gross domestic product and 95 percent of government revenue.

Under the terms of the law as it currently stands, Iraq’s 115 billion barrels of oil – behind only Saudi Arabia and Iran worldwide – would be open to foreign investors to kickstart lagging production under contracts called Production Sharing Agreements. Under such agreements, the oil is still ostensibly owned by the country of Iraq, but a share of the profits from the oil go to the international corporations that invest in the infrastructure necessary to build and operate the wells and refineries. According to British oil industry watchdog group Platform, the return for foreign investors under the proposed terms would be between 42 and 162 percent, far higher than the usual industry minimum of 12 percent.

This is unusual for a number of reasons. First, no other major Middle Eastern oil-producing country has ever entered into such an agreement, instead opting for a completely state-owned oil industry. Second, PSAs are usually used in countries where oil reserves might be small or difficult to access. Governments sign into these deals offering high-profit rates to investors because the return is uncertain. Iraq’s oil reserves, however, are proven plentiful and easy to access. These agreements are notoriously hard to renegotiate, and this could lock the country into an agreement for up to the next 30 years.

Why would Iraq accept such onerous terms? Remaining debt from Hussein’s regime and a crippled, war-torn economy mean that Iraq must start collecting revenue as soon as possible, and the government rightly sees oil revenue, even after the profit gouging from foreign investors, as necessary for the country’s survival.

It is unwise for the Iraqi government to pass this legislation without public debate and in the midst of chaos. A 2005 poll found that 74 percent of Iraqis believed the main reason for the U.S. invasion was to control Iraq’s oil. If this law passes, their suspicions might be vindicated.