Under heavy pressure from the U.S., Iraq’s cabinet approved a draft oil law, Feb. 26, that would effectively shift control of the country’s huge oil resources to multinational corporations, experts charge. Iraq’s Parliament has yet to see the details, but U.S. and British oil corporations and the International Monetary Fund have been involved in the drafting process since early 2006.
Iraq has the world’s second or third largest proven oil reserves. Oil is seen as key to rebuilding the country and enabling it to achieve economic and political sovereignty. Iraq’s oil also puts it in the cross-hairs of transnational oil corporations and international power politics.
The draft law provides for “exploration risk contracts” allowing foreign companies control of oil exploration, development and production for up to 30 years. Earlier drafts used the more commonly known term “production-sharing agreements” (PSAs), but these sparked enormous opposition in Iraq, particularly from its unions.
The new draft “sets up the same thing with a different name,” said Greg Muttitt, co-director of Platform, a British group that watchdogs the multinational oil corporations. In addition, the draft allows the government to sign contracts without Parliament’s approval, he said.
If the law is adopted as is, “basically, control of the Iraqi oil industry will shift from the public sector, where it’s been since the 1970s, into the hands of the multinational oil companies, especially British and American, which is a very radical change,” he said. But Iraqis are “passionate” about keeping the oil in Iraq’s hands, Muttit noted. “It will be very difficult to overcome public sentiment.”
“We are against PSAs” regardless of what they are called, said Salam Ali, of the Iraqi Communist Party’s international relations committee. National ownership of oil is a “very sensitive” issue for Iraqis. “Whoever drafted this version has made sure it will not seem as controversial as had been expected,” Ali said. “There was some massaging.” But privatization is a “subtext” of the draft, he said.
With this agreement, Muttit said, Iraq would be “completely breaking away from normal procedure” used by all major oil-producing countries, none of whom allow such foreign control. In Saudi Arabia, with the world’s biggest oil reserves, oil is fully owned and controlled by the national oil company. The same is true for Kuwait. The United Arab Emirates and Iran allow some foreign investment but maintain national control.
Russia offers a striking lesson, he said. With the world’s seventh biggest reserves, Russia is the largest country to have signed PSAs. It signed three such agreements in the mid-1990s, but they became so controversial that none have been signed since and “there is no chance of more,” Muttitt said. Like Iraq today, Russia in the 1990s was in a period of political and economic chaos. “A few years later, the Russians woke up” and saw that these deals were a big mistake, “but it was too late.” Now, he said, the same thing could happen to Iraq.
Experts note that Iraq has fallen behind on technical expertise after a dozen years of U.S.-imposed economic sanctions, followed by the war. What would help Iraq, they say, is “technical service contracts” like those used by Iraq’s neighbors. These are standard business contracts that countries’ national oil companies sign with foreign companies to bring in expertise. They are for limited time periods, for specific services and fees, not contracts that hand foreign transnationals exclusive rights to develop the oil for their own interests and take a large share of the revenue.
Such service agreements, with transfer of technology to Iraq, would establish “equitable” relations from which Iraqis would benefit, Ali said.
Since last July, drafts of the oil law have been reviewed by U.S. officials, multinational oil companies and the IMF, but not the Iraqi public, news media or Parliament, said Muttitt.
The Iraq Study Group report last December listed action on oil among its key recommendations. “The United States should encourage investment in Iraq’s oil sector by the international community and by international energy companies,” it declared, and “should assist Iraqi leaders to reorganize the national oil industry as a commercial enterprise.”
Some in Iraq and elsewhere divert attention from the key issue by focusing on how oil revenues will be distributed, although the draft addresses that, allocating revenues to provinces based on population, Ali said. “They don’t talk much about the importance of Iraq’s oil to the oil monopolies. They dress it up as … addressing fears of the Sunni population. The reality of the matter is the oil law has much more to do with control of the oil sector.”
A reason why the U.S. and Britain are pushing so hard on the oil law, said Muttitt, is the growing pressure on them to pull out troops. “As long as the two countries have major troop presence they have a lot of influence,” he commented. “They would like to see this happen before any significant troop withdrawal.”
Current security problems may prevent foreign monopolies from moving in now, said Ali, “but once you sign a contract you can sit and wait” for the situation to improve.
