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How the US Stole Iraq's Oil !

Politics / Iraq War Jun 10, 2005 - 09:09 PM GMT

By: CarlosM

Politics

The UK-based PLATFORM has revealed the strategy to take over Iraq's oil in a new report, "Crude Designs."

According to the authors, it's not quite the ownership of oil reserves that western interests are after, but an arrangement that will allow governments and companies to deny that “privatization” is taking place at all.

The plan, which was developed by the US State Department's Future of Iraq Project, and supported by key figures in the Iraqi Oil Ministry, is to use highly complex contracts known as production sharing agreements (PSA's) , which have existed in the oil industry since the late 1960s.

PSA's are an ingenious arrangement that leaves intact state ownership of the untapped oil, while inverting the flow of payments between the state and companies. Whereas in a concession system, foreign companies have rights to the oil in the ground, and compensate host states for extracting their resources (e.g. via royalties or taxes), under a PSA foreign companies are compensated for their investment in oil production infrastructure and the risks they take in extracting the oil. Under PSA's, the private companies will continue to operate as "contractors" -- a label that is misleading because it gives companies control over oil development and access to extensive profits.


"PSA's are effectively immune from public scrutiny and lock governments into economic terms that cannot be altered for decades," the authors contend. As Helmut Merklein, a former senior official of the Department of energy once explained, PSA's inevitably tend to give foreign oil companies excessive profits at the country's expense (the authors estimate those profits will be between 42% and 162%).

PSA's are also designed to deprive governments of control over the development of their oil industry. PSA's would, for example, exempt foreign oil companies from any new laws that might affect their profits, a principle that goes far beyond certain CPA orders which already grant U.S. companies immunity from civil lawsuits in Iraq. Under terms that are reminiscent of certain trade agreement provisions, for example, any disputes would be heard not in the country's own courts but in international investment tribunals, which would rule on commercial grounds without considering the national interest or other national laws.

For that and other reasons, oil experts agree that the purpose of using PSA's is largely political. In Iraq's case, the PSA contracts could be inked while the country still under military occupation. The use of PSA's has been endorsed by the current Transitional Government, while the new Iraqi Constitution includes vague provisions that would allow foreign companies in.

Yet the use of PSA's in Iraq would represent a major departure from the normal practice among large oil producers in the region. Saudi Arabia and Kuwait (not to mention Iran) also do not use any form of foreign company equity involvement in oilfields. (Currently just 12% of world oil reserves are currently subject to PSA's)

Although no one can predict what will happen, the pressure put on Iraq to adopt PSA's is substantial and has a lot to do with the coded language that talks about "spreading democracy" throughout the oil-rich region. The current government is fast-tracking the process and is already negotiating contracts with oil companies in parallel with the constitutional process, elections and passage of a Petroleum Law.

PSA's are the worst possible deals for countries; in Latin America some of the worst PSA's gave domestic governments royalties of just one percent of their natural gas revenues.


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